Michael Saunders hints at support for Bank of England interest rate rise

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Michael Saunders, an external member of the Bank of England's Monetary Policy Committee, laid out a potential case for a hike in UK interest rates on Friday.

In a speech to the Federation of Small Businesses Mr Saunders, who joined the MPC last August, said he thought GDP growth and inflation in 2017 could come in higher than the Bank forecast in February.

He also stressed that the 0.25 per cent Bank rate was already "accommodative".

"A modest rise in rates would imply that considerable stimulus remains in place, helping to support output and jobs," he said.

While Mr Saunders, who was previously a UK economist at Citigroup, said that he was not prejudging how he might vote in future on monetary policy the speech is likely to identify him as one of the more hawkish members of the MPC.

In March's MPC meeting Kristin Forbes, another external member, voted to raise interest rates to 0.5 per cent.

And the minutes of the meeting showed that "some members" were close to following.

The document said: “Some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.”

Ms Forbes is due to leave the MPC at the end of June.

In its February Inflation Report the Bank of England projected 2 per cent GDP growth for 2017 and for consumer price inflation to rise to 2.7 per cent.

Mr Saunders said he "would not be surprised" if inflation reaches 3 per cent this year and that "growth seems more likely to exceed the consensus...than to undershoot".

The Bank cut rates to 0.25 per cent last August in the face of an anticipated post-Brexit referendum slump.

In his speech, Mr Saunders suggested the impact of this monetary loosening "may have been greater than expected" and was thus one reason why growth had been stronger in the wake of the referendum than expected by the Bank last summer.