October 20, 2015 / 1:54 PM / 2 years ago

UPDATE 1-Bank of England must not fall behind curve on rates -McCafferty

* BoE rate-setter urges colleagues not to fall behind the curve

* McCafferty currently only MPC member voting for higher rates

* UK economy robust, no sign China slowdown having an impact

* McCafferty says not isolated in his views among policymakers (Adds quotes from television interview)

By Andy Bruce

LONDON, Oct 20 (Reuters) - The Bank of England (BoE) must not fall behind the curve when it comes to making its first interest rate hike since before the financial crisis, according a policymaker, who said Britain's robust economy has not been damaged by slowing growth in China.

Ian McCafferty, the only member of the Monetary Policy Committee (MPC) who votes for higher interest rates, showed no sign of softening his stance on Tuesday.

Despite more than two years of strong economic growth, the BoE appears to be in no rush to raise borrowing costs with inflation around zero. Eight of the nine MPC members have voted to leave rates at their record low of 0.5 percent for the last three months.

While acknowledging there were now greater risks from China and emerging markets, McCafferty said there was little sign they were hurting Britain's economy and the time had come to begin raising rates.

The neutral interest rate - the level of interest rates consistent with the economy growing at its trend rate with stable inflation - is likely to rise gradually by 2017 as headwinds to the economy fade.

"If we on the MPC are to achieve our ambition of raising rates only gradually, so as to minimise the disruption to households and businesses ... we need to avoid getting 'behind the curve' with respect to the neutral rate," McCafferty said in a speech at Bloomberg's London headquarters.

"And for me, that provides an additional justification not to leave the start date for lift-off too late."

Financial markets are pricing in a British interest rate hike only around the end of next year, but economists polled by Reuters mostly think the BoE will move in early 2016.

BoE Governor Mark Carney has said a decision on a rate hike will become clearer around the turn of the year.

McCafferty said he was not isolated among rate-setters. "The differences between individual members of the MPC are those of degree rather than of kind," he later told Bloomberg Television.

"As the minutes have stated, there are other members of the MPC who are also looking at some of the risks that I have identified...," he said.

Last week, MPC member, Kristin Forbes, said a slowdown in China and other emerging markets should not block a rate hike.

McCafferty said it was easy to overstate how much Britain's economy could be affected by the slowdown seen so far in China.

The BoE did not need to wait for the U.S. Federal Reserve to raise rates before acting itself, McCafferty said, although most economists believe the Fed will move first.

Some indicators of British economic growth have cooled recently. But McCafferty said tight credit conditions for companies had "diminished markedly", with small firms broadening their sources of finance away from banks while big companies were dipping into capital markets.

The British government's push to eliminate the budget deficit and the global economy's sub-par growth would continue to weigh on growth. But improving business finance was supporting the normalisation of the economy, he said. (Additional reporting by William Schomberg, Ana Nicolaci da Costa and Angus Berwick; Editing by Louise Ireland)

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