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Bank chief's plea on interest rates

Bank chief's plea on interest rates

Monday 30 June 2014

Bank chief's plea on interest rates

The governor of the Bank of England has urged people to focus on the "big picture" rather than obsessing about when interest rates will start to rise.

Mark Carney shrugged off criticism that he has been giving mixed signals over the timing of increases, describing the issue as a "shorter-term question" which would be decided by "nine individuals on the Monetary Policy Committee".

Instead, he insisted the important thing for home-owners and businesses was that rates were likely to stabilise at around 2.5% in three years' time, rather than the historically "normal" level of 5%. The comments came in an interview with the BBC Radio 4 Today programme following jibes from MPs that he has been behaving like an "unreliable boyfriend" by hinting at a rise from the record 0.5% low this year, before appearing to back-pedal.

Mr Carney said the economy was performing even better than the Bank had expected, with unemployment and inflation both falling.

"In terms of delivering, we are delivering," he said.

On the question of whether the first rate rise would come this year or early next, Mr Carney said it could be "any of those".

"What matters is what happens in the near term for that, but the big picture is not whether the Bank rate goes from half a percent to slightly above that lowest ever level," he said. "That's not the big picture. The big picture is where interest rates go over the medium term, because, if I'm taking out a mortgage, that's what I care about, and if I'm thinking about investing in a new plant, if I'm thinking about hiring people, that's what I care about, because those are the debts that I have to service."

He indicated that rates were not likely to return to the long-run average of around 5%, and said increases would be "limited and more gradual than in the past" given the vulnerability of family and government finances.

"The old normal is not the new normal. It is not likely to be the new normal," he said. "If you look at financial markets, their estimation over three years is around, let's call it, 2.5% - could be slightly lower, could be slightly higher. We see that as not inconsistent with returning the economy (to health)."

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