Partly Cloudy

Partly Cloudy

max temp: 11°C

min temp: 3°C

ESTD 1874 Search

Economy: Bank of England governor hints at earlier than expected rate rise

09:08 13 June 2014

Mark Carney, governor of the Bank of England, speaks at the Lord Mayor

Mark Carney, governor of the Bank of England, speaks at the Lord Mayor's Dinner to the Bankers and Merchants of the City of London at the Mansion House.

Interest rates could rise from their historic low of 0.5% sooner than expected, Bank of England governor Mark Carney has warned.

shares

He said “gradual and limited” increases would be needed as the economic recovery progresses, and that while it would be wrong to start now, this was “coming nearer”.

Mr Carney also signalled that the bank could take “graduate and proportionate actions” within weeks as a separate measure to cool the threat of an overheating housing market - described as the greatest danger to the economy.

Interest rates have been held at 0.5% since 2009 to try to nurse the UK back to health but the strength of the recovery has heightened speculation about when they will rise, with City experts pencilling in a hike next spring.

But in his first Mansion House speech since becoming governor, Mr Carney said: “It could happen sooner than markets currently expect.”

The remarks are likely to intensify some economists’ predictions that a rate rise could take place as early as this year, and are in contrast with remarks last month when the governor appeared to dampen speculation about an early rise.

Mr Carney said in his speech that growth had been much stronger and unemployment fallen much more quickly than had been expected.

He reiterated that rate increases would be “gradual and limited” as the UK continued to face a series of challenges, the greatest being from the threat of a housing bubble, with exports also struggling and debt too high.

He said the economy was “unbalanced internally and externally”, pointing to indications that despite a better picture on unemployment there remained too much “wasteful spare capacity”. Wage growth was subdued.

High levels of private sector debt would be “particularly sensitive” to a rate hike, the governor added.

Mr Carney said the need for “vigilance and activism” was most acute in the housing market which was “showing the potential to overheat” - with prices up around 10% a year, approaching early 2007 levels.

He said the bank was concerned by the threat posed by indebtedness of overextended borrowers and pointed to the vulnerability of the UK in having household debt of 140% of disposable income.

Mr Carney said raising interest rates today would be the wrong response, reiterating that this would only be a “last line of defence”. The governor added: “Fortunately, we are not up the proverbial creek without a paddle.”

He pointed to powers including caps on loan-to-income (LTI) and loan-to-value (LTV) ratios on mortgages, amid increasing expectations that the Bank will deploy some of these tools when its Financial Policy Committee (FPC) reports in two weeks.

The governor said the FPC would “weigh carefully... the merits of graduated and proportionate actions to mitigate the potential vulnerabilities arising from what is the greatest threat to the domestic economy”.

But he said that such “insurance policies” would not necessarily affect the path of interest rate increases.

Mr Carney said the need to use up wasteful spare capacity while achieving the inflation target of 2% would “likely require gradual and limited interest rate increases as the expansion progresses”.

“The start of that journey is coming nearer,” he added.

shares

0 comments

Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files
Comments

Please log in to leave a comment and share your views with other East Anglian Daily Times visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by East Anglian Daily Times staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique East Anglian Daily Times account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

A colder than normal start to the year has boosted British Gas profits.

Profits at British Gas are set to rise after the energy supplier revealed a boost in consumption following a colder than normal start to the year.

Matthew Embley,  RDC recycling services manager, left, and Gary Griffiths, RDC international partners compliance, with the company's gold Zero Waste award.

Information technology reuse and recycling company RDC has received a gold Zero Waste Award from the letsrecycle.com website.

Angela Rushforth, managing director of Ridgeons, with the firm's Investors in People gold accreditation.

Regional timber and builders’ merchant chain Ridgeons has been awarded a “gold” rating under ther Investors in People (IiP) programme.

Alex Till of Menta.

Suffolk-based Enterprise agency Menta and the county branch of the Institute of Directors (IoD) are working together to help Suffolk business owners as they strive for growth.

The water unit from the Prince's Street fire station with Ipswich with officials from the Port of Ipswich and students from Suffolk New College at the water safety demostration hosted by the port.

The Port of Ipswich teamed up with Suffolk Fire and Rescue Service to stage a rescue simulation off Orwell Quay.

From left, Chris Chamberlain from HTK, Vicki Cole from Crafted and Helen Dodman from Ipswich Central, the three organisations behind the Destination Digital conference.

The company behind the delivery of the Ipswich town centre Business Improvement District project has teamed up with two local digital specialist to stage a conference on online marketing for the tourism and hospitality sectors.

French Connection has warned that it faces a substantial loss when it posts its annual results.

Fashion chain French Connection today warned that it now expects to make a big annual loss after seeing its recovery hopes dashed by a difficult spring trading period.

Andrew Harrison, managing director of Stansted Airport.

Manchester Airports Group, parent company of Stansted Airport, scored a four-star rating in Business in the Community’s 2015 CR Index.

Dominic Casserley, group chief executive of Willis.

Global risk advice and insurance broking firm Willis has launched a 550million euro (£393m) offer to take full control of the French broker Gras Savoye.

Sainsbury's is to cut 800 jobs as part of a restructuring of its store operations.

Sainsbury’s is to cut 800 jobs as it becomes the latest supermarket to restructure its operations in the face of tough trading conditions.

Most read

Most commented

Topic pages