Mortgage and savings rates could start to rise in early 2016, the Bank of England governor has hinted. As part of his remit to control inflation, Mark Carney said interest rates could start to rise from "the turn of the year".
Bank of England chief hints at January rate rise
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Mortgage and savings rates could start to rise in early 2016, the Bank of England governor has hinted. As part of his remit to control inflation, Mark Carney said interest rates could start to rise from "the turn of the year". In a speech at Lincoln Cathedral, the governor said: "The Monetary Policy Committee's intention is to return inflation to target in a sustainable manner within two years. That means setting Bank Rate to eliminate the remaining slack in the economy, bringing about the sustained increase in costs necessary to achieve overall inflation of 2%. "I expect that this will involve raising Bank Rate over the next three years from its current all-time low of 0.5%." However, homeowners fearing drastic increases in the mortgage costs may be reassured that the governor has said he expects increases in the base rate "to be gradual, and limited to a level below past averages". With the Bank's historic average short-term interest rate 4.5%, the governor said he expected the base rate to rise to about half that – 2.25% – over the next three years. The Bank is closely monitoring the effect of rate rises on homeowners and Carney said that, based on current market expectations of where the base rate will be over the next few years, over a half of UK mortgage holders will pay higher rates in a year's time, and close to three-quarters of them in two years' time. Carney said the Bank's decision-making about interest rate changes will, as ever, be based on detailed economic analysis and will be responsive to any ‘shocks' or developments that the UK economy will have to weather. "The path is much more important than the precise timing of the first rate increase," he said. Could the rate rise this year? Howard Archer, chief UK and European economist at IHS Global Insight, has said that a rate rise could come before the end of the year. "For the time being, we are maintaining the view that the Bank of England will lift interest rates from 0.50% to 0.75% in February 2016, but we have become markedly less confident in this call and there is clearly now a very real possibility that the MPC could act before the end of 2015, most likely in November." He explained: "An interest rate hike before the end of 2015 will become ever more likely if earnings growth picks up further over the coming months and the economy maintains healthy growth." Regardless of whether the Bank of England ups the base rate in late-2015 or early-2016, Archer said IHS Global Insight sees interest rates "only rising to 1.25% by the end of 2016 and 2% by the end of 2017". Earlier this week, the CPI measure of inflation fell to 0%, from 0.1% the previous month.
Source Moneywise http://ift.tt/1Ojq558
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