Carney warns of further interest rate rises
BANK OF England boss Mark Carney has braced borrowers for further and faster interest rate hikes after stronger-thanexpected growth in the economy.
Policymakers on the Bank’s nine-strong Monetary Policy Committee (MPC) voted unanimously to leave rates unchanged at 0.5 per cent.
But Mr Carney said rates would need to rise sooner and by more than expected at the time of the Bank’s last forecasts in November to get inflation back to target. It leaves the door open to a potential rate hike as soon as May, with markets also now pencilling in more than three hikes within three years.
Mr Carney refused to be drawn on the exact timing of future hikes, but said they would need to rise “somewhat earlier and by a somewhat greater degree” than expected at the time of the Bank’s last quarterly forecasts in November.
He stressed rises would be limited and gradual, assuring borrowers the UK will not return to interest rate cycles “experienced in the past”, when historically there were two rises a quarter and borrowing costs stood at five per cent on average.
“We are not talking about going back to those levels or that historic pace,” he said.
The report sent the pound surging more than one per cent against the US dollar and euro on the Bank’s rate hike hints, while the FTSE 100 Index fell one per cent.
It comes after financial markets suffered a brutal selloff at the start of the week in response to fears that rising inflation could spark interest rate hikes across a number of economies.
Financial markets believe there is a 50/50 chance of rates being raised to 0.75 per cent in May, when the Bank’s next set of forecasts are due, with at least two more by the end of 2020, taking the bank rate to 1.25 per cent. The Bank said the economy had performed better than expected and upped its growth forecasts to 1.8 per cent in 2018, from 1.6 per cent predicted in November.