MPC member in call for a gradual increase in rates

In an interview, Mr Sentance also said he was encouraged by the strength of the recovery in the manufacturing sector.

Mr Sentance has been voting for higher rates since last June and for the last two months has called for a half percentage point increase in borrowing costs from their record low of 0.5 per cent.

“If you have interest rates too low for too long the problem we have is it becomes more difficult to raise interest rates more sharply in the future,” he said.

“I would like to see rates raised gradually now and not put it off.”

Meanwhile, Bank of England policymaker Adam Posen will not seek a second term on the Monetary Policy Committee if his persistent lone call for more quantitative easing proves to have been a mistake.

In an interview, Mr Posen said he was still convinced that a looming slump in inflation would vindicate his call since October for an extra £50bn to be pumped into the economy.

“If I have made the wrong call, not only will I switch my vote, I would not pursue a second term. They should have somebody who gets it right and not me. I am accountable for my performance. I’m holding my nerve because it is the right thing to do,” he said. Inflation has been more than double the Bank’s 2 per cent target so far this year, and the balance of argument on the nine-member MPC is shifting away from Mr Posen, with three members voting for a rate rise in February and March’s meetings.

Nomura economist Peter Westaway, who used to work at the Bank, said he was shocked by Mr Posen’s statement.

“That’s unprecedented in my experience. Not even David Blanchflower threatened to step down,” he said, referring to a dovish predecessor of Mr Posen who had a jaundiced relationship with other MPC members.

His three-year term on the MPC expires at the end of August 2012, but can be renewed once. Mr Posen does expect inflation to fall to 1.5 per cent by the middle of next year, a bigger fall than that expected by most of the rest of the council.

The Bank’s February inflation report shows a roughly one in three chance of inflation being 1.5 per cent or lower in the second half of 2012.

The central forecast was for inflation to peak at around 4.5 per cent in the third quarter of this year, before falling steadily.