Yes, interest rates will rise again... but not yet
HOUSEHOLDS were last night told to prepare for more interest rate rises in the coming years as the Bank of England fights to keep a lid on inflation.
Governor Mark Carney warned rates were likely to rise again following the first hike for a decade, to 0.5 per cent, in November.
But he seemed to suggest the next increase may not come as soon as next month, as many analysts had predicted. A rate rise would be a blow to millions of borrowers but give further respite to savers, who have suffered dismal returns since the financial crisis.
Speaking to the BBC during the annual meeting of the International Monetary Fund (IMF) in Washington, Mr Carney said: ‘Prepare for a few interest rate rises over the next few years. I don’t want to get too focused on the precise timing, it is more about the general path.
‘The biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with.
‘Then we will adjust to the impact of those decisions in order to keep the economy on a stable path.’
Mr Carney noted that some of the recent data on the UK economy had been ‘softer’ than it might have been – including the fall in inflation to a 12-month low of 2.5 per cent last month and a 1.2 per cent drop in retail sales.
It is thought this could delay the next rate hike until later in the year.
Interest rates were slashed to a then-record low of 0.5 per cent during the financial crisis and again to 0.25 per cent following the Brexit vote. They were put back up to 0.5 per cent in November – the first rate hike in the UK since July 2007. It was widely thought they would rise again to 0.75 per cent next month.
But Mr Carney said: ‘We have had some mixed data. Retail sales have been a bit softer – we are all aware of the squeeze that is going on in the High Street.’
Christine Lagarde, head of the IMF, warned that the outlook for the UK economy would remain gloomy until Britain clears up the terms under which it leaves the EU.
She said: ‘The cloud of uncertainty that covers the British economy is certainly one of the causes why it is not enjoying the same kind of upswings as the other advanced economies.’
The IMF forecasts that Britain’s economy will expand at 1.6 per cent this year, relegating it down the growth league of the seven largest economies to third from bottom.
Mrs Lagarde has been notably negative about the UK’s post-Brexit prospects, predicting before the 2016 referendum that the consequences would be ‘pretty bad, to very bad’.
She has since softened her tone but still remains gloomy despite Britain having one of the lowest levels of unemployment in the EU.
‘Squeeze on the High Street’