Carney warns families: Brace for interest rate rise in 7 weeks

BRITISH households were last night told to prepare for interest rates to rise in just seven weeks as the Bank of England steps up its fight against inflation.

After the bank froze rates at 0.25 per cent yesterday, Governor Mark Carney said the possibility of a rate hike in the near future ‘has definitely increased’.

He added: ‘In order to return inflation to target in a sustainable manner, there may need to be some adjustment of interest rates in the coming months.’

The comments, which sent the pound to its highest level in more than a year against the dollar, were seen as a clear signal that rates could rise to 0.5 per cent by November 2 – after the next meeting of the Bank’s monetary policy committee.

That would push up the cost of borrowing for millions of families with mortgages before Christmas. Experts predicted further rises would follow next year with rates hitting 1.25 per cent before the end of 2018.

But others cast doubt over whether the Bank would follow through on the threat, given that previous warnings of rate rises came to nothing.

Jeremy Cook, chief economist at currency experts World First, said the bank has made hawkish noises before.

He said: ‘We are getting into “the boy who cried wolf ” territory on UK interest rates.’

But Paul Hollingsworth, UK economist at Capital Economics, said: ‘If the economy con- tinues to hold up, then the first hike could come somewhat earlier than we had previously envisaged, possibly as soon as November.’

He then expects three more rate rises next year – to 0.75 per cent in May, 1 per cent in August and 1.25 per cent November 2018. The last rise in interest rates came in July 2007, two months before Northern Rock triggered the first bank run in Britain for more than a century.

But with inflation running well above the 2 per cent target at 2.9 per cent, the Bank is under mounting pressure to raise rates and bring the cost of living back under control. Higher interest rates would offer some relief to Britain’s army of savers who have lost out since the financial crisis.

But an increase in the Bank rate to 0.5 per cent would add £19 a month to repayments on a typical £150,000 25-year mortgage – or £228 a year.

A rate rise to 1.25 per cent would add £78 a month or £936 a year to the same home loan.

Among those in the firing line are the 2.5million firsttime buyers who have taken out mortgages since the last rate rise and have never experienced such a move.

The prospect of higher interest rates often boosts a currency because investors are attracted by the promise of higher returns.

Sterling climbed above $1.34 against the dollar for the first time in a year and hit a twomonth high of nearly €1.13 against the euro.

‘Boy who cried wolf’