Carney: Interest rates may rise

The governor of the Bank of England has hinted that there may be a rise in the base rate of interest, despite ongoing concerns about the European economy.

Mark Carney told MPs the central bank may consider increasing interest as part of its ongoing policy moves.

However, there are fears that both Europe and Japan have seen a slowdown in performance in recent months.

Mr Carney stressed that the focus of the Monetary Policy Committee (MPC) will focus on the possibility of raising rates, rather than other potential options.

“I want to be absolutely clear, the discussions we’ve been having as a committee have been about the pace, timing and degree of tightening.”

 “The geopolitical situation remains difficult and the combination of that suggests a heightened degree of external risk to the United Kingdom,” he told MPs on the Treasury Select Committee.

At the last meeting of the MPC, the majority voted to continue with the base rate of interest at its historic low of 0.5 per cent.

In most of the MPC meetings of the past five years, the decision to hold the rate has been largely unanimous, but not always – with as many as three of the nine voting for a rate rise in 2011 before the economy threatened to slip back into recession.

The Institute of Directors (IoD) is one of the UK bodies pushing for the MPC to vote in favour of an interest rate rise at some point.

James Sproule, chief economist at the organisation, said: “We remain concerned that there is insufficient appreciation that we are experiencing extraordinary monetary policy and it should not be assumed that such an extraordinary policy can continue.”

He added that the IoD wants the UK to get to a point where monetary policy can “again be effective” within the next few years.

This could see interest rates rising to around three to four per cent.

Mr Sproule believes that the economic recovery has reached a point where it is strong enough to cope if the MPC starts adopting another approach.

“Only once monetary policy has been normalised can interest rates be an effective policy tool,” he added.