The Bank of England’s governor Mark Carney revealed that the BoE is looking to raise interest rates “at the turn of this year” — but a former and outspoken BoE member Danny Blanchflower warned this will hurt the economy.
Carney said in a speech on Thursday that the BoE is aiming to raise rates around the start of 2016 and rates will continue to rise over three years to around 2%. Currently, Britain’s interest rates have stayed at a record low of 0.5% for the past six years.
“Short term interest rates have averaged around 4.5% since around the Bank’s inception three centuries ago,” said Carney.
“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. 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.”
However, Blanchflower still thinks its not time and the BoE should not raise interest rates any time soon.
“It may well be that the US Federal Reserve is going to put off raising so it seems rather strange that Carney is trying to harm the UK by raising interest rates hurting mortgage holding and strengthening the pound. It seems a rather strange thing to do, I would have advised against it,” he said to the BBC.
An interest rate hike is good news for savers but bad news for those in debt. However, in a reaction note, Howard Archer, chief UK economist at IHS Global told the BBC that he reckons interest rates won’t rise until at least February 2016.
“There is clearly now a very real possibility that the MPC could act before the end of 2015,” he said. “Regardless of whether the Bank of England first acts in late 2015 or early 2016, we see interest rates only rising to 1.25% by the end of 2016 and 2% by the end of 2017.”
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