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Interest rates rise moves closer given performance of economy: BoE's governor

Xinhua, July 15, 2015 Adjust font size:

The Bank of England's (BoE) governor Mark Carney Tuesday said that the time for an interest rate rise was getting closer given the performance of the economy.

Testifying to the Treasury Select Committee of the Parliament, the central banker said: "The point at which interest rates may begin to rise is moving closer given the performance of the economy."

Last Thursday, or in July 9, BoE voted to keep its main interest rate Bank Rate unchanged at 0.5 percent, and quantitative easing (QE) policy at 375 billion pounds (or 585 billion U.S. dollars). It was the 76th month that the central bank has maintaining this ultra low interest rate.

Carney said that BoE would be able to raise rates due to "consistent growth above trend, a firming in domestic costs, counter-balanced by disinflation imported from abroad".

However, he stressed that: "Once rates begin to adjust, we expect for those adjustments to be at a gradual pace and to a limited extent." That means the rates would not be raised to the levels seen before the financial crisis.

He said: "I do think there are a variety of factors that mean that the new normal, certainly over the policy horizon over the next three years, is substantially lower than it was previously."

"I see no scenario in which they would move towards historic levels," he added.

Most economists here reckon that the central bank would not raise rates until next year at the earliest.

Economists at BNP Paribas said in a research note to clients: "We judge these comments as supporting our view that the Bank is likely to deliver the first rate hike earlier than the current market pricing of May 2016. Our forecast is for a February 2016 move."

Martin Beck, senior economic advisor to the EY ITEM Club, commented: "The absence of underlying inflationary pressures suggests that the headline rate will remain some way short of the 2 percent target in 2016. Consequently, we continue to expect the MPC to push back any decision to raise interest rates until well into next year."

The Britain's consumer prices index (CPI) fell back to zero in the year to June 2015, from 0.1 percent in May 2015, data from the Office for National Statistics (ONS) showed Tuesday. (1 pound=1.56 U.S. dollars) Endit