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UK interest rates could rise in new year


UK interest rates could rise at “the turn of this year”, according to Mark Carney, governor of the Bank of England.

Interest rates have been at a historical low of 0.5% for the last six years, but this could be set to change as the economic recovery gathers pace.

The governor indicated that when rates do rise, they could reach “about half as high as historical averages”, which would mean an increase to around 2%.

However, he also added that any potential economic shocks could have a further effect on the timing of an increase to UK interest rates, and the Monetary Policy Committee (MPC) will “have to feel its way as it goes”.


Mr Carney said: “It is not unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages”.

These comments come at a time when UK inflation is at 0%, whilst unemployment rose for the first time in two years.

The timing of these comments therefore suggest that the Bank of England now feel that low inflation, low wage rises and rising wage inflation are all due to ‘skills shortages’.

Howard Archer, chief UK economist at IHS Global said that he still believes his original prediction of a rate rise in February 2016 is correct, but he is “markedly less confident in this call”.

Mr Archer also added: "Regardless of whether the Bank of England first acts in late 2015 or early 2016, we see interest rates only rising to 1.25% by the end of 2016 and 2% by the end of 2017."

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