Carney hints at 2015 rate rise

Mortgage Introducer

July 17, 2015

He reassured borrowers that the new normal for rates will be around 2% and 2.5% and the Bank of England will only raise them slowly.

Base rates have been held at a historic low of 0.5% for more than six years.

Carney said: “Short-term interest rates have averaged around 4.5% since around the Bank’s inception three centuries ago.

“It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.

“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”

Last Tuesday the governor told borrowers that the time to raise base rates is “moving closer”.

He noted that UK households are more sensitive to rate hikes than in America because of the number of mortgage borrowers on standard variable rates.

Calum Bennie, marketing manager at Scottish Friendly, said: “Last year our favourite ‘unreliable boyfriend’ over-promised and under-delivered on interest rates, so this hint of an increase could be another case of smoke and mirrors.

“Given inflation is currently at zero and the economy still looks a little fragile, it will be interesting to see if an interest rate rise actually transpires.

“The possibility of an interest rate rise will generate a mixed reaction in people. Those who have borrowed money will see repayments increase and may begin to struggle to keep up, while on the flip side, savers are unlikely to see a rise in savings rates for some time.

“Those people who do think they might struggle if rates rise need to start preparing now to weather the changes.”

In June the Monetary Policy Committee unanimously voted to hold base rates at 0.5%. The minutes from this month’s meeting will be released on 22 July.

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