Interest rates will rise soon, hints Bank economist
INTEREST rates will rise in the ‘not too distant future’, a senior economist at the Bank of England said last night.
Kristin Forbes, one of the nine economists who decide when rates should be increased, said the ‘date is coming closer’ – prompting speculation they could go up this year.
A rise in rates will put pressure on millions of homeowners paying off mortgages, but should bring relief to savers who are currently receiving meagre interest on their money.
Mrs Forbes suggested news of the strongest pay rises in six years could bring forward a hike in rates.
Wages climbed by 2.7 per cent in the year to April, the fastest pace since February 2009, according to the Office for National Statistics.
Economists had widely predicted that the Bank’s base rate – which is linked to savings and mortgage rates – would not rise until early to mid-2016. But Mrs Forbes’ comments suggest an increase could come sooner than expected.
She told ITV News: ‘It’s coming at some point in the not too distant future. As we continue to talk about that and we see strength in the economy, and especially as we continue to see wage growth as we’ve learned about today, that will make people realise that the date when interest rates go up is coming closer.’ She assured homeowners that any rise would be gradual and should not lead to a sharp hike in their monthly home loan repayments.
The US economist, a member of the Bank of England’s ratesetting Monetary Policy Committee, added: ‘If you have a mortgage, if rates go up one month or one month later shouldn’t affect your borrowing costs. What matters more is the overall path of rate increases.’
The base rate has been kept at a historic low of 0.5 per cent since 2009, as Britain recovered from the recession.
The ONS revealed workers are earning about £13 a week more than 12 months ago, or £676 extra a year. In the private sector, wages rose by 3.1 per cent in the year to April, excluding bonuses. But public sector workers received more modest 1 per cent pay rises, on average, following austerity wage freezes for many civil servants.
Chancellor George Osborne said the overall rise in pay was ‘good news’ and showed the Government’s economic plan was working.
The Bank of England believes wages in the UK may be rising even faster than official figures suggest. Decent wage rises could, in turn, push up inflation, which is hovering around zero. Mrs Forbes said there ‘will come a point when we will need to adjust interest rates, possibly before inflation gets near two per cent’. She said inflation could ‘bounce back at the end of this year towards’ the Bank’s target level of 2 per cent.