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Bank of England in no rush to raise rates

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
05/12/2014

The Bank of England says an interest rate rise is still some way off, despite acknowledging the strength of the economic recovery.

In its Quarterly Inflation Report, Bank Governor Mark Carney played down speculation of an imminent rate rise by saying the base rate is likely to stay at its record low of 0.5 per cent for “some time”.

When the Committee does start to raise rates, it will do so “gradually and to a level materially below its pre-crisis average”, Carney added

While the Bank governor said the economy is “edging towards” a time when a hike will be required, he emphasised the recovery has only just begun.

“We should not forget the economy has only just begun to head back to normal,” he said.

“Securing the recovery is like making it through the qualifying rounds of the World Cup. That’s a major achievement but it is not the ultimate goal.”

The latest inflation report showed little change in the Bank’s growth and inflation forecasts. The Bank now expects UK GDP growth of 2.9 per cent next year, up from 2.7 per cent in its February report, but the 2014 forecast of 3.4 per cent was unchanged.

The report also noted that the availability of mortgage lending had improved, including at relatively high loan to value ratios, but warned the introduction of the Mortgage Market Review’s (MMR) recommendations may result in a dip in mortgage approvals.

Ben Brettell, Economics Editor at Hargreaves Lansdown, said: “Expectations rates might rise as early as this year are probably unfounded – it looks likely the first rise won’t come until 2015, and quite possibly after May’s election.

“However, of much more interest to mortgage-holders, savers and investors is where rates might end up. On this subject the Bank of England has been fairly clear – it expects rates to stabilise at much lower levels than we saw pre-crisis. A peak of 2-3 per cent looks more likely than 5-6 per cent.”