(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.The Bank of England could raise interest rates early next year if the labor market recovers smoothly after the end of the furlough program, according to policy maker Gertjan Vlieghe. The pound jumped.Vlieghe, a member of the BOE’s Monetary Policy Committee, said Thursday that such “upside” scenario hinges on a forecast-beating economic recovery, potentially lower unemployment and subdued wage pressures.While he laid out more pessimistic outcomes and didn’t even rule out the use of negative interest rates, the market’s reaction signals investors are honing in on the potential of a rip-roaring recovery.“It would probably take until the first quarter of next year to have a clear view of the post-furlough unemployment and wage dynamics, so a rise in Bank Rate could be appropriate soon after, along a slightly steeper path than in my central case,” Vlieghe said.The comments fueled a gain of as much as 0.5% for the pound, the biggest one-day advance among the Group-of-10 currencies. The currency had pulled back last week after rallying toward the highest level since 2018.The yield on U.K. government 10-year bonds, known as gilts, also rose, while money markets boosted bets on BOE rate hikes.“The MPC doves are slowly but surely turning to balanced — this is a turning point for gilts,” said Peter Chatwell, head of multi-asset strategy at Mizuho.Vlieghe, however, said any improvement in the labor market after the expiry of government support this year was subject to “significant uncertainty.”“We are talking about millions of workers, and even if only a small share of them end up in unemployment later this year, that could lead to a rise in unemployment that is of macro-economic significance,” he said.Under Vlieghe’s central scenario, the BOE is unlikely to raise borrowing costs until well into 2022. The central bank lowered its benchmark rate twice last year to a record-low of 0.1%.Vlieghe, who joined the MPC in 2015, is in his final months in the role, with his term due to expire on Aug. 31.“It’s very useful because he’s someone who’s relatively central and very well regarded,’ said Victoria Clarke, chief U.K. economist at Banco Santander SA. “Every city economist has their own view on what might happen after the furlough scheme ends and here’s a slightly more explicit judgment on where policy might move off the back of it.”(Adds economist quote in final paragraph.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.