FORTUNE — The UK may need higher interest rates “sooner rather than later”, a member of the Bank of England’s policy-making committee said in an interview with the Financial Times Thursday.
The comments by Martin Weale, generally regarded as one of the more ‘hawkish’ members of the BoE’s Monetary Policy Committee, are another sign that the UK is set to become the first major western economy to raise rates as the economic recovery gains momentum. By contrast, the European Central Bank looks set to ease its monetary policy further next week.
For now, Weale’s is a minority voice. At its last meeting, the MPC was still unanimous in holding its key rate at 0.5%, where it has been throughout the post-crisis recession and the slow, halting recovery that has followed it. But minutes released shortly after that meeting said that the decision to keep rates so low “was becoming more balanced” for “some” of its nine members, indicating more concern about inflation than the Bank’s latest quarterly outlook had suggested.
The BoE’s Canadian governor, Mark Carney, has been at pains to talk down the threat of rate increases since he took over, visibly trying not to choke off a recovery which began at the start of 2013. However, the UK is now the fasting growing economy in the G7–the International Monetary Fund predicts it will expand by 2.9% this year–and according to European Commission data released Wednesday, UK consumer confidence is at its highest in over 25 years. Already, many analysts are fretting that this will lead to another credit-fuelled boom in house prices, which are up by over 10% on the year. The Bank itself has also said it’s worried by the housing market.
Carney has promised that any return to higher rates will be slow and gradual, but Weale told the FT: “If you want to have baby steps you do have to start sooner. The question is: how close are we getting to ‘soon’? Of course we can never be sure, but the economy . . . has sustained fairly rapid growth in demand.”
Weale estimated that a ‘slow and gradual’ tightening would, in reality, amount to around an increase of “no more than” 0.25% every quarter, but even that is more than is currently implied by futures contracts for borrowing in sterling.
For most of the last few months, markets have priced in the first interest rate hike around the first quarter of next year. But Rob Wood, an economist with Berenberg Bank in London, said in a research note Thursday that he sees “at least a 35% chance” of a hike already in November.