Waiting too long to raise interest rates from its current record low of 0.5 per cent risks damaging Britain's economic recovery, one of the Bank of England's policy makers has warned.
MIT professor Kristin Forbes, who sits on the Bank's monetary policy committee (MPC) said keeping rates low while the economy was growing and wages were rising could create "distortions".
Writing in the Daily Telegraph, she said China's recent decision to devalue the yuan and falls in energy prices meant the MPC had a "bit more time before inflationary pressures build" - but warned that to hold off on increasing interest rates could mean they shoot up faster than expected in future.
With such low inflation today, it is understandable to want to avoid pre-emptively ending this holiday.
A solid recovery is finally here. Increasing interest rates prematurely could moderate companies’ willingness to invest and consumers’ willingness to spend. But unfortunately monetary policy works with lags.
Maintaining interest rates at the current low levels during an expansion risks creating distortions. Therefore, interest rates will need to be increased well before inflation hits our two per cent target.
Waiting too long would risk undermining the recovery - especially if interest rates then need to be increased faster than the gradual path which we expect.
The Bank of England forecasts inflation will hover around zero for the next few months, with the potential for again turning negative as it did briefly earlier this year.
This reduces the need to hike interest rates now to keep inflation from overshooting its 2% target, although one member of the Monetary Policy Committee, Ian McCafferty, voted to increase rates by 0.25% to 0.75%.
Today's report could dampen expectations that a rate hike could come as soon as the end of this year.
A deluge of information will be released by the Bank of England at midday today that is likely to provide an insight into when interest rates will rise.
Dubbed "Super Thursday", the Bank will publish its interest rate decision, the minutes of the Monetary Policy Committee, which decides the rate, and its quarterly Inflation Report, the latest view on the state of the UK economy.
Mark Carney, the Governor of the Bank of England, will also hold a news conference to provide further details.
Previously the announcements have been spread out over a couple of weeks, but they are being combined in a bid to improve transparency.
Interest rates have been frozen at 0.5% since 2009 and, although the Bank is not expected to announce a rise today, a hike has been widely predicted for this winter.
Senior bankers have greeted Mark Carney's tough new proposals to crack down on fraudulent practices.
Anthony Browne, chief executive of the British Bankers' Association, said: "It's vital that London once again sets the gold standard for fair dealing and integrity in financial markets.
"We welcome the intention to extend regulation from banks to other types of trading organisations. This should give customers greater clarity and protection."
Martin Wheatley, chief executive of the Financial Conduct Authority, added: "These markets are central to our economy and today's recommendations will be important in rebuilding public trust in their integrity."
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Governor Mark Carney has said people should 'enjoy the low inflation while it lasts' as the Bank of England will bring inflation up to the 2% target by the end of the year.
We expect inflation to be very low over the next few months. But over the course of the year as we get towards the end inflation should start to pick up towards our 2% target.
The British people should enjoy this period of very low energy prices low, very low food prices, enjoy it while it lasts.
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An referendum on the UK's membership of the European Union should take place "as soon as necessary", the Bank of England governor has said.
Mark Carney said businesses are continuing to invest and hire despite political uncertainty connected to either the recent election or future referendum but added that: "It's in the interests of everybody that there is clarity about the process and the question and the decision."
The Conservatives have pledged to have a vote on the issue before the end of 2017. Asked if the referendum had resulted in uncertainty among business bosses, Mr Carney told BBC Radio 4's Today programme:
We talk to a lot of bosses and there has been an awareness of some of this political uncertainty - whether because of the election or because of the referendum.
What they've been telling us, and we see it in the statistics, is they have not yet acted on that uncertainty - or to put it another way, they are continuing to invest, they are continuing to hire.
Asked why productivity has not therefore increased, Mr Carney said: "It should start to move up.
"One of the big advantages this economy has is access to the European market. It's the largest economy in the world, it's our largest per destination, it's our largest investor in the United Kingdom."
Asked if he meant he would like to see the referendum sooner rather than later, Mr Carney said: "As soon as necessary. That's as much as you're going to get."
Interest rates have been held at their historic low of 0.5% as the Bank of England announced the result of deliberations concluded last week..
Rates have been at their current level for six years, with the recent slide in inflation to zero pushing back expectations for the timing of an increase into 2016.
The Bank's monetary policy committee (MPC) announced its decision today after meeting on Thursday - polling day - and again on Friday morning.
More insight into the Bank's thinking will emerge this week with its quarterly inflation report and a second letter from governor Mark Carney to the Chancellor explaining why inflation is more than 1% off its 2% target