UK interest rates could rise at turn of year

Bank of England governor Mark Carney has indicated that Britain's record-low interest rates could start to rise at the turn of the year.

The BoE chief, speaking at Lincoln Cathedral late Thursday, said he expected the key rate to climb over the next three years from its current level of 0.50 percent -- where it has stood for more than six years to stimulate growth after the global financial crisis.

Carney cautioned that rates would rise slowly before reaching a level that is about half as high as its historical average of five percent.

Britain is edging towards lifting rates because of the strength of its economy, which was the fastest growing of the G7 richest nations last year, he added.

"It would not seem unreasonable to me to expect that, once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages," Carney said.

"In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year."

He warned that external shocks to the economy and exchange rate moves would impact the timing and size of any rate hikes.

Any move was uncertain owing to "the inevitability that the economy will be buffeted by shocks and that monetary policy will have to adjust accordingly."

Carney had already suggested on Tuesday that the central bank was "moving closer" to a rise in borrowing costs.

Howard Archer, economist at consultancy IHS Global Insight, said the BoE was "seemingly preparing consumers and businesses for an interest rate hike."

Earlier this month, the BoE's rate-setting Monetary Policy Committee opted to leave its interest rate at 0.50 percent in the face of low inflation and steady growth.

The nine-member MPC also maintained the bank's level of quantitative easing (QE) cash stimulus pumping around the British economy at £375 billion ($577 billion, 522 billion euros).

The BoE's main lending rate has stood at a record-low 0.50 percent since March 2009, when the bank also launched its radical QE asset purchase scheme.
Source: AFP