News Column

Interest rates may hit three per cent in five years

May 26, 2014

jOHN BYNORTH; jOHN BYNORTH

HOMEOWNERS face interest rates of around three per cent within three to five years, according a senior figure at the Bank of England.

Outgoing deputy governor Charlie Bean's prediction that it could settle at a lower level than the pre-crash period came amid suggestions the move away from the historic-low 0.5 per cent base rate could begin sooner than expected.

"The Bank rate averaged about five per cent in the decade or so before the crisis," Mr Bean said. "It's reasonable to think that, because of the headwinds that are still out there as well as some the global forces ... perhaps the level that we go to three or five years out might be a couple of percentage points below that," he said.

Members of the Bank's monetary policy committee voted unanimously in favour of leaving interest rates on hold at the same level since 2009 earlier this month.

But minutes of the meeting showed there was less agreement on the course for future rates.

The first hike had been not expected until the second quarter of next year, or late in the first quarter.

Mr Bean suggested it could start earlier with some "baby steps".

He said: "There's a case for moving gradually because we won't be quite certain about the impact of tightening the Bank rate.

"It might not operate in quite the same way as before the crisis. So that's an argument for being a little bit cautious, moving in baby steps to avoid making mistakes.

"But of course if you want to pursue that strategy you need to start taking those baby steps a bit earlier, otherwise you end up being behind the curve. But there are arguments on the other side."


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Source: Herald, The (Scotland)


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