Bank Of England Governor Hints At Earlier Base Rate Hike

Bank Of England Governor Hints At Earlier Base Rate Hike

Is Mark Carney Eager To Raise Interest Rates?

The Governor of the Bank of England (BoE), Mark Carney, has drawn further criticism from economists after giving another mixed signal on the timing of any base rate increase away from the current historic low.

In an interview with the Sunday Times newspaper Mr Carney took great care to big up the health of the nation’s economy and insisted that the Bank of England would not wait for employed peoples wages to catch-up with the cost of living before hiking interest rates.

Mr Carney told the Sunday Times: “Wherever the finish line was in the depths of the crisis, we are much more than halfway towards that finish line now. The expansion is proceeding, momentum is more assured. The very fact we have had consistent quarters of growth in line with, or slightly better than, our forecasts shows that. We have to have the confidence that prospective real wages are going to be growing sustainably, before raising interest rates, we don’t have to wait for the fact of that turn to raise them.”His statement angered economists by apparently sending out mixed messages over the BoE’s intentions and his unguarded comments surprised markets, after recently hinting that the Bank was in no mood to hike rates while wage growth remained so low.

Mr Carney said that better-than-expected growth over successive quarters has built up momentum in the UK’s economy, which the Bank now expects to grow by 3.5% this year and 3% in 2015.

However, the Bank of England has halved its forecast for UK pay growth in 2014 from 2.5% down to just 1.25%, with official data showing that employed annual pay actually fell by 0.2% in the second quarter of this year, worse than the Bank had originally expected.

Unemployment has dropped faster than was previously anticipated, falling below 6% this year, while net inflation rates are expected to continue averaging around 2%.

According to a new survey commissioned by United Trust Bank, more than one in five brokers operating in the Bridging, Development Finance and Asset Finance sectors expect the Bank to start increasing interest rates before the end of this year and just over half thought a rate rise by mid-2015 was most likely. More than a quarter believe the first rate rise won’t come until the second half of 2015, or even as late as early 2016.

87% of the brokers surveyed expected that the Bank of England’s base rate would settle at around 2% to 3% within the next three years and just 9% thought the base rate would stay at around 1%. However, 4% of brokers thought the base rate would settle at 4% or above.

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