Bank chief signals interest rate rise
THE first interest rate rise in a decade is on the way, the governor of the Bank of England revealed yesterday.
Mark Carney signalled that a hike from its historic low could be on the cards as early as November, when the Bank’s Monetary Policy Committee next meets.
He said: “We are talking about just easing a bit off the accelerator to keep with the speed limit of the economy.
“So interest rate increases – when and if they come – will be to a limited extent and in a gradual way.”
Any rise would be the first since July 2007. The rate was lowered to 0.25 per cent in August last year.
A rise would mean millions of homeowners facing higher monthly mortgage repayments as lenders pass on the increase.
On the average mortgage of £122,000, an increase of 0.25 per cent would increase monthly payments by £15 to £665 – equivalent to £180 over the course of a year.
Mr Carney’s warning, in an interview on Radio 4’s Today programme, was echoed by Britain’s biggest building society. Robert Gardner, chief economist at the Nationwide, said: “A near-term rate hike is becoming more likely.
“Most economists and financial market pricing now suggest that a small rise of 0.25 per cent is likely.
“Financial market pricing suggests that the bank rate is only likely to rise by around one percentage point, to 1.25 per cent, over the next five years.”
Most new mortgages are on fixed interest rates.
The share of mortgages on variable rates has fallen to its lowest level on record, at 40 per cent, down from a peak of 70 per cent in 2001.
Mr Gardner thinks the impact of a small rate rise on UK household budgets would be “modest”.
In his radio interview, Mr Carney also warned of the dangers of “reckless” lending to consumers, with a 10 per cent rise in such debt.
Mr Carney said there was a “pocket of risk” around credit card borrowing, plus personal and car loans.
He added: “We are worried about the shift from what has been responsible lending to reckless lending.”