Europe News

As UK regains strength, time to hike rates?

Danger of slow withdrawal of central bank stimulus: Pro

U.K. growth weakened in March to an 8-month low, according to research by the Confederation of British Industry (CBI), but the outlook for the next quarter was positive, with the service sector expected to drive growth.

The CBI's latest survey, which offers an early insight into the pace of economic growth, found that the U.K. economy was continuing "to bed down" in the first quarter of 2014.

New figures released by the Office of National Statistics on Thursday showed British retail sales rose 1.7 percent last month compared, bouncing back from a 2 percent fall in January.

Consumers are leading the recovery as prices continue to fall. Earlier this week the ONS revealed that U.K. inflation sunk to its lowest level in more than 4 years in February, dipping further below the Bank of England's 2 percent target.

"As this year progresses, we expect further increases in business and consumer confidence, supportive monetary conditions and a broadening recovery to feed through to business investment and the labor market in particular, with productivity and earnings expected to start recovering," the CBI report stated.

But former Bank of England Monetary Policy Committee member Andrew Sentance told CNBC that central banks needed to finally end their stimulus measures.

(Read more: UK inflation sinks to 4-year low)

"It's a very good thing that we have low inflation and it eases to squeeze on consumers. But we can't wait until inflation is a real and present danger before we start raising interest rates from 0.5 percent," he said.

"I actually expect the Bank of England to be raising interest rates by the end of the year."

The CBI also stated that revisions to 2013 gross domestic product (GDP) showed that while consumer spending was still the main driver for growth, business investment had made a greater contribution than previously assumed.

Sentance added: "The business surveys in the U.K. have been really pretty positive quite consistently so that could bode well for investment."

(Read more: Bubble alert? UK house prices rise to 6-year record)

Sentance argued that monetary stimulus from central banks on both sides of the Atlantic needed to be scaled back.

"As time has gone on, we are seeing in asset markets and financial markets evidence that this loose monetary policy is not necessarily appropriate and that we're approaching the point where central banks need to withdraw some of the stimulus," he said.

While tapering had begun, he said, "The danger is that central banks are a little bit too slow in withdrawing the stimulus.

The ONS announced this week that house prices in the U.K. surged 6.8 percent in the year to January 2014, up from 5.5 percent in December last year. In London, where the property prices continually hit record highs, the cost of housing soared by 13.2 percent year-on-year.

Sentance said that a raising of interest rates would "help cool some of the housing market. We don't want to totally damp down the housing market. We want to see housing activity increase, we want to see more building."