Written by: Keith Tully
Reviewed: Friday 29th September, 2017
The Bank of England governor Mark Carney has given a clear indication that he expects the base rate of interest in the UK to rise in the near future.
Carney spoke positively about the state of the economy and suggested that if certain key factors including employment levels and retail sales remain robust then an increase in the cost of borrowing could be on the cards.
He told BBC Radio 4’s Today programme that if the economy shows signs of strengthening then “in the relatively near term you can expect that interest rates will increase”.
The Bank of England’s monetary policy committee, whose members vote to decide on any change in the base rate of interest, voted seven to two in favour of maintaining rates in September.
However, statements given on behalf of the committee suggested that only unexpectedly bad economic data in the coming weeks would keep them from voting for a rise in the base rate before the end of 2017.
Carney echoed that sentiment in his conversations with the BBC and said that it could be time for the Bank of England to “ease its foot off the accelerator” in terms of its approach to monetary policy and interest rates.
Raising the base rate of interest and the cost of borrowing would be a move designed in part to bring down rates of inflation which are currently higher than the target levels that the Bank of England aims for.
Carney’s hints at a rate rise came very shortly before the release of revised economic data from the Office for National Statistics which showed that year-on-year GDP growth slowed to 1.5 per cent from 1.8 per cent during the first three months of this year.
Meanwhile, the overall growth rate for the UK economy during the three months to the end of June stood at just 0.3 per cent.
“It would be unprecedented for the central bank to tighten policy with the data pointing to such anaemic economic growth,” said Chris Williamson, chief business economist at IHS Markit, in a statement.
“However, policymakers continue to fuel expectations that interest rates will rise soon in response to higher than expected inflation.”