STANDARD Life Investments has said interest rates should rise sooner rather than later.

Scotland's second biggest fund manager says the Bank of England must soon "move away from an emergency policy setting" and it should look to tighten policy, or risk greater volatility further down the line

James McCann, UK and European Economist, Standard Life Investments, writing in the latest edition of SLI's Global Perspective, said: "With the current recovery proceeding impressively and property markets accelerating we believe that the bank should flex its muscles sooner rather than later. Indeed while it is not yet time to remove the punchbowl of accommodative policy, it looks increasingly appropriate to water down this intoxicating mixture. The BoE can lead with macroprudential measures in the first instance, but should raise rates later this year if spare capacity continues to shrink and financial conditions do not tighten sufficiently."

Loading article content

Business secretary Vince Cable has urged no early rise in rates, claiming it would threaten the recovery. But this week's drop in inflation to a four-and-a-half year low of 1.5 per cent follows BoE governor Mark Carney's surprise hint rates could rise before the end of 2014.

Mr McCann said: "By starting early and moving gradually the BoE would be in a stronger position to calibrate the pace and scope of tightening. There is growing evidence the MPC is moving in this direction. We would urge the committee to follow through on this signal, with the balance of risk pointing to a gradual move away from emergency policy."