Carney signals rates will rise (but haven’t we heard that before?)
THE Bank of England yesterday warned that households should prepare for interest rates to rise as it steps up its fight against inflation.
Governor Mark Carney signalled that the current record low rate of 0.25 per cent could hit 0.5 per cent next summer before reaching 1 per cent or higher by mid-2020 – pushing up the cost of mortgages for millions of families.
in a blunt message to borrowers, the central bank suggested the era of ultra-cheap money could be about to end. among those in the firing line are 2.5million first-time buyers who have taken out mortgages since the last rate rise more than a decade ago and have never experienced the rapid rise in repayments they cause.
Mr Carney conceded there were a number of ‘vulnerable households’ around the country but insisted the economy could ‘withstand’ higher rates should they become necessary to keep inflation from spiralling.
the Bank last raised rates in July 2007 – pushing them up to 5.75 per cent. rates were then slashed during the financial crisis, to 0.5 per cent, where they were frozen for more than seven years from March 2009 to august 2016. then the Bank cut interest rates once again, to 0.25 per cent, as it warned the economy would grind to a halt following the Brexit vote.
a rise to 0.5 per cent would add £18.42 a month to repayments on a typical £150,000 25-year home loan, while a rise to 1 per cent would add £56.19.
Painting a mixed picture of Britain’s economic outlook, he warned that ‘the speed limit of the economy has slowed’ following the Brexit vote as businesses postpone investment.
But he declared that the country was in a ‘position of strength’ with unemployment at a 42-year low and that the financial sys- tem was now ‘rock solid’ following years of repair.
the Canadian also predicted that living standards will start to rise once again in the coming months as pressure on family finances eases.
‘We are going through a sluggish period in the economy,’ Mr Carney said. ‘real incomes are being squeezed because prices are going up in the shops and wages haven’t been growing as rapidly. We think we are in the teeth of this right now, but as we move into the new year we’ll see inflation start to come down and household income start to go up. We move out of this income squeeze.’
the comments came as the Bank trimmed its forecasts for economic growth in the UK – from 1.9 per cent to 1.7 per cent for this year and from 1.7 per cent to 1.6 per cent next year. Growth of 1.8 per cent is then expected in 2019 as Britain leaves the European Union. ÷Mr Carney said pay restraint in the public sector – capped at 1 per cent for most workers – was ‘understandable’ given the pain felt by private sector workers since the financial crisis.
the governor said the past decade had seen the biggest squeeze on incomes since the 19th century – with staff at private firms taking much of the strain. ‘this country has been in a prolonged period of very weak private sector wages,’ he said. ‘it’s understandable there’s public sector wage restraint.’
‘Going through a sluggish period’