Signs of an economic recovery and sharply rising inflation could force the Bank of England’s monetary policy committee (MPC) to consider raising rates early this year, an analysis by Henderson New Star indicated.

The company’s “MPC-ometer” – a statistical tool for forecasting interest rate decisions based on the latest economic and financial indicators – predicts that the MPC will shift to a “tightening bias” in early 2010.

“With preliminary fourth-quarter GDP [economic growth] figures released in late January likely to confirm a recovery, and inflation rising sharply, the model suggests that Bank Rate could be increased as early as March,” Henderson said.

The MPC-ometer has a good record of predicting the Bank’s decisions on interest rates. It has correctly signalled the month and direction of 12 out of 13 rate movements over the past two and a half years, two more than the mean economists’ forecast from the monthly Reuters poll, the fund manager said.

Simon Ward, Henderson’s chief economist, said: “Monetary policy must remain loose to support the recovery but the current emergency level of Bank Rate is no longer warranted and poses a risk to achieving the inflation target.

“The MPC is likely to prepare markets for policy reversal in the February Inflation Report and follow through with a rate increase in the spring, unless economic or financial indicators take a sudden turn for the worse.”

Mr Ward first warned in September last year that rates could start to rise sharply in early 2010. He said then: “Given the historically low starting level [of interest rates], rises in Bank Rate, when they begin, could be larger than in the initial stages of prior cycles.”