Financial News

  • 13 June 2014, 8:19

Interest Rates May Rise 'Sooner Than Expected'

Bank of England governor Mark Carney has given a strong hint that interest rates may rise before the General Election next May.

In his first Mansion House speech since becoming governor, Mr Carney warned "gradual and limited" increases would be needed as the economy recovers.

The base rate has been stuck at 0.5% since 2009, but the strength of the recovery has heightened speculation about when rates will rise.

"It could happen sooner than markets currently expect," Mr Carney said.

With the economy recovering faster than anticipated, analysts predict the interest rate hike could even come as early as this year.

Mr Carney also warned the Bank may take action within weeks to cool the threat of Britain's overheating housing market.

He said the housing market is currently "showing the potential to overheat", with prices rising at a rate of around 10% each year.

The Bank is also concerned by the threat posed by indebtedness of over-extended borrowers, he added.

The economy is "unbalanced internally and externally", pointing to indications that despite better unemployment figures there remained too much "wasteful spare capacity".

But Mr Carney said raising interest rates now would be the wrong response, reiterating that this would only be a "last line of defence".

"Fortunately, we are not up the proverbial creek without a paddle," he said.

Advertisement