Bank of England urged to raise rates soon to avoid a repeat of the financial crisis

The Telegraph reports that the Bank of England has been urged to raise rates sooner and faster than expected by the world's central bank to retain its inflation-fighting credibility and "ward off" another financial crisis.

"Controlling inflation in the long term will require policy tightening. And with short-term inflation up, that means a quicker normalisation of policy rates," the Bank for International Settlements (BIS), the central bankers' central bank, said in its annual report.

BIS singles out the Bank, noting: "In the UK, CPI has exceeded the Bank of England's 2pc target since December 2009, reaching a peak of 4.5pc. As yet, there has been no move by the Monetary Policy Committee, but one wonders how long its current policy can be sustained."

The market defines "normal" rates as about 5pc, but UK rates have been at a historic low of 0.5pc since March 2009 and are now not expected to rise for another 12 months.

BIS said such "extremely accommodative" policies are threatening to embed high inflation in the system, with damaging repercussions for long-term growth. It added that low rates are also jeopardising financial stability by encouraging dangerous risk-taking in the financial sector.

"Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks," it said. "Central banks may have to be prepared to raise rates at a faster pace than in previous tightening episodes."

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