Jan. 26 --The Bank of England should start to raise interest rates as early as this summer to avoid giving households a shock with larger increases, a former member of its rate-setting committee has warned. Andrew Sentance , a member of the Monetary Policy Committee until 2011, told The Mail on Sunday that the rate should rise 'certainly some time this year and possibly towards the middle of this year if the economic recovery continues'. The Bank itself has said a rate rise is not imminent and most economists do not expect a rise until the end of this year at the earliest. Sentance's call comes after a sharp slide in unemployment to 7.1 per cent last week, raising hopes and fears of an interest rate rise. Under his policy of forward guidance, Governor Mark Carney has made it clear that no rate rise will be considered before unemployment has dropped to 7 per cent or lower. With that threshold approaching, the Governor and the MPC are under pressure to clarify their position. Carney also indicated last week that new forward guidance will be outlined soon, but will probably be more subtle than the blunt employment threshold outlined last year. The issue will be a key topic for discussion at next week's MPC meeting. But, other potential thresholds, such as a rise in real earnings, could expose Carney to fresh controversies since the issue is now a bone of contention between the Government and Labour. Sentance, now senior economic adviser at accountancy firm PricewaterhouseCoopers , will this week launch his book, Rediscovering Growth: After The Crisis, which argues that the economy can not expect to return to its old pace and growth pattern without fundamental changes. An overhaul of public spending, freer global trade and business-boosting reforms are all part of his prescription, but he also calls for the Bank of England interest rate to be brought gradually back to normal levels after five years at the historically low rate of 0.5 per cent. 'Keeping rates low is the sort of forward guidance we needed four years ago,' Sentance said. 'If I was still on the MPC, I would be arguing now for preparing the ground for interest rate rises.' Sentance's main fear is that by delaying rate rises, businesses and households may be caught out when they become necessary. 'If this is not done gradually with a lot of planning, it is going to come as a big shock,' he said. But other economists argue the recovery is still too fragile to risk raising rates even in small steps. The latest official figures for the economy come out on Tuesday and are expected to show that there was a slight drop in the rate of growth in the last quarter of 2013, but that it is still set to be 2 per cent or more for the full year. ___ (c)2014 Daily Mail (London, ) Visit the Daily Mail (London, ) at www.dailymail.co.uk/home/index.html Distributed by MCT Information Services
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