Bank Rate Rise 'Likely In Spring 2015'
Families and businesses should prepare themselves for an interest rate rise in the spring of next year, a leading Bank of England policymaker has told Sky News.
Martin Weale, one of the nine members of the Bank's Monetary Policy Committee (MPC), has given the most explicit guidance yet on when borrowing costs in Britain will rise from their current record low of 0.5%.
In an exclusive interview, he said: "I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year. And then the path is likely to be relatively gradual."
The comments indicate that the bank could be on track to raise borrowing costs before the General Election, slated for May 7, 2015.
Mr Weale said: "During an election campaign it would obviously be difficult (to change rates) but the election campaign will last for three weeks".
He said that if average earnings rise more quickly than expected in the coming months, "I couldn't rule out the need for a rate rise coming earlier."
However, he emphasised that it was highly unlikely that rates would climb anywhere near 5% - the level previously considered the norm - for the foreseeable future.
Mr Weale's comments come amid growing speculation about coming increases in bank rate, which has been at 0.5% for almost five years.
Last August, the bank committed not to even consider raising borrowing costs until the unemployment rate dropped to 7%.
The unemployment rate, which was then close to 8%, has since dropped very sharply, hitting 7.1% late last year, before rising a touch to 7.2% in December.
Governor Mark Carney has insisted that he had no regrets in implementing this policy of forward guidance, even though the jobless rate had dropped so sharply.
However, Mr Weale, who was the one MPC member to vote against forward guidance last August, said he would have been even more forceful with his resistance had he realised how wrong the bank's forecasts for unemployment were.
"Had I thought that there was a substantial probability that because of the movement of unemployment that (forward guidance) would have a life of less than a year then I wouldn't have been enthusiastic," he said.
Mr Weale also cast doubt on the bank's calculation, published last week, that there was still 1% to 1.5% of spare capacity - meaning the extent to which the economy can grow without pushing up inflation - left in the UK.
He said what when one bore in mind that many of those who would like to work more would earn comparatively low salaries, "the impact ? is to drag down the impression you would have of the labour market output gap very considerably."
He added that one major concern in the economy at present was the behaviour of the property market.
"I do worry that house prices are very elevated," he said.
"It's true that in inflation adjusted terms they are probably still lower than they were in 2007 but that doesn't tell you very much because no-one thought that the level of house prices in 2007 was a source of comfort."
A final cause for concern were levels of inequality in the economy, which many warn have been exacerbated by quantitative easing, the bank's policy of creating £375bn and spending it on government bonds.
He said: "Many people will look at levels of inequality and the way they've changed and wonder whether that is a sign of a well-functioning economy, but in voting for quantitative easing what I've been doing is the job I'm paid to do which is to deliver the inflation target."
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