Bank of England boss says the time for higher interest rates is “getting closer”

25th September 2014

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Bank of England governor Mark Carney has urged that interest rates are set to rise in the coming months given that the UK economy is back on stronger ground.

The Telegraph reported that at a conference in Wales on Thursday, Carney said that the time for higher interest rates is “getting closer”.

In a bid to prop up the economy during the financial crisis, the cost of borrowing was slashed to a record low of 0.5% in March 2009, and it has been stuck there ever since.

But on the back of the more robust economic backdrop and stronger labour market Mark Carney said: “Relative to the recent past, the economic outlook is much improved.

“While there is always uncertainty about the future, you can expect interest rates to begin to increase.”

He added however that any rises would be “gradual and limited” and to a level “lower than in the past”.

“With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer,” he added.

In the last two monthly meetings of the nine-member Monetary Policy Committee, two of the group voted for a rise to 0.75%.

1 thought on “Bank of England boss says the time for higher interest rates is “getting closer””

  1. David Lilley says:

    If I had elected myself to be the provider of “forward guidance” I would be giving some now. I would set a date for an increase in the base rate, in party with my MPC members, and remove that most alarming of things, uncertainty.
    Additionally. Forget about 1/4%. It is water off a duck back. What is the point of a 25 basis points hike when you might have to repeat it a further 10 times as Alan Greenspan had to do when reducing rates following the dotcom bubble bursting. A 1% movement would convey a message and messages convey certainty.
    The MPC should also consider the relative bluntness of their interest rate tool. Gone are the days when they could change the base rate and the following day the banks and building societies would publish their changes to savings and lending rates in all the newspapers. Savings and lending rates are now far removed from the influence of the BoE base rate.
    Before even thinking about changing the base rate the BoE should be thinking about its policies on discount lending to banks provided they lend on to business and QE.
    Whilst their is currently a massive appetite for negative real interest rate short and long term Gilts from Russia and the Middle-East it is the perfect time to reduce QE. QE came after reducing interest rates to near zero. QE was where you went when the “reducing interest rates” weapon had been exhausted. Reducing QE is therefore the obvious starting point for increasing interest rates and not the blunt instrument of small incremental increases in base rate.

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