Monetary policy is boosting growth in Britain and interest rates will probably have to continue rising gradually, Bank of England (BoE) Monetary Policy Committee member Mr Paul Tucker said today.
In a speech to fund managers, Mr Tucker said that the current BoE base rate of 4 per cent still leaves "policy stimulating the economy".
"Indeed, I prefer to think of our recent policy adjustments as withdrawing some - but not all - of the previous stimulus," he said.
The BoE has raised interest rates by a quarter-point twice since November. Most analysts expect a further move by May.
Tucker noted that the MPC favoured a "cautious" approach, not least because of uncertainties about the effect rate rises would have on debt-laden consumers.
"With higher debts relative to incomes, interest rate changes will tend to have a bigger effect on the income that households have free to spend after servicing their debts," he said.
"The implication is that, other things being equal, policy would tend to move towards neutral more slowly than would otherwise be optimal, or cautiously for want of a better word."
But he said that household debt had grown alongside a rise in house prices and that this may have reduced credit constraints faced by households, which could mean rates would have to be higher than they would otherwise need to be.