Mark Carney: Rate rise moving closer

Mortgage Introducer

July 14, 2015

However Carney admitted that UK households are more sensitive to interest rate hikes than across the pond as a number of mortgage borrowers are on standard variable rate deals.

Despite deflation falling to 0.0% in the year to June, as revealed by the Office for National Statistics today, the governor signalled that the UK is almost ready for the first rate rise since the financial crisis.

He said: “The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counter-balanced somewhat by disinflation imported from abroad.

“One of the reasons for that is the greater sensitivity of the average UK household to interest rates because mortgages are principally floating rate in the UK and principally fixed in the U.S.

“Once rates begin to adjust, we expect for those adjustments to be at a gradual pace and to a limited extent. We will learn about the sensitivity as rates begin to adjust, we will watch it very closely.”

Carney also spoke of a ‘new normal’, which he suggested could be lower than the norm of around 5% in the decade before the financial crisis and definitely lower than the peak of nearly 15% in 1989.

He said: “I do think there are a variety of factors that mean that the new normal, certainly over the policy horizon over the next three years, is substantially lower than it was previously.

“I see no scenario in which they would move towards historic levels.”

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