Mark Carney, the Governor of the Bank of England, has hinted that the UK may be approaching the point when interest rates finally begin to rise.
Talking to Parliament’s Treasury Select Committee on Tuesday 14 July, Mr Carney intimated that improving economic performance, growth and stability mean that the point at which rates may start to climb “is moving closer”.
He also reiterated that rate rises would be gradual “and to a limited extent”, promising a “new normal” that is far lower than the levels seen prior to the financial crisis.
Meanwhile, Monetary Policy Committee (MPC) member Ian McCafferty – who was one of two MPC members to vote for a 0.25% rate increase on five consecutive occasions in late 2014 – told the committee that a rate hike is “finely balanced”.
News of the comments hit a few hours after the Office for National Statistics (ONS) released its inflation figures for June, which show that the Consumer Price Index (CPI) has once again fallen to 0%. Downward movement in the prices of clothing and food, as well as a smaller rise in air fares than that observed twelve months prior, were contributing factors.
The low inflation seen the first half of 2015 has been a primary factor in the MPC’s return to unanimity regarding holding interest rates at their current level. It may not delay rises indefinitely, however; last month, McCafferty’s fellow hawk Martin Weale told the Financial Times that the Bank of England should be prepared to raise rates as early as August – even if inflation remains down for longer than anticipated 1.
- Giles, C. and Giugliano, G. “Bank of England hawk says prepare for UK rate rise”. Financial Times. 23 Jun 2015.