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Carney: Estimate for rates to hit 2-3% ‘not unreasonable’

Nick Paler
Written By:
Posted:
11/03/2014
Updated:
05/12/2014

Bank of England governor Mark Carney has said rates could be as high as 3% over the medium term, endorsing comments made by colleague Charles Bean earlier this week.

Facing questions from MPs over comments the Bank has given since its quarterly Inflation Report last month, Carney said the forecast from his colleague was “not unreasonable”.

“Charlie Bean said yesterday there could be a 2%-2.5% move over the course of the forecast horizon. That is not unreasonable.”

The forecast horizon in the latest Inflation Report covers the period to the end of 2017, and the comment therefore chimes with expectations of low rates for a long time.

His comments come after Bean, deputy governor for monetary policy, said in a speech yesterday that interest rates would increase “gradually” to a 2-3% level in the medium term.

Carney also implied rates would have to rise by more than 0.5 percentage points before any move to reduce quantitative easing (QE) was made, saying interest rates were the key tool to use if the recovery continued.

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“We should start with the Bank Rate and maintain the ability to adjust it down as well as up. It would be more difficult to adjust QE in both directions.”

“Any unwinding of QE should come after several adjustments to rates.”