Tuesday, 9 September 2014

Mark Carney signals U.K. interest rates to rise by spring

Otmane El Rhazi from CBC | Business News .

Britain Mark Carney

Bank of England Governor Mark Carney has served notice that Britain's interest rates could start rising next spring.

In a speech delivered Tuesday to U.K. trade unions, Carney said there was no firm timetable for rate hikes, but he expects the bank would meet its inflation target if it started lifting borrowing rates gradually in the spring.

That is in line with what investors currently expect, and could dovetail or come slightly ahead of the U.S. Fed’s timetable for rate hikes.

Fed chair Janet Yellen has said rates might rise “six months or so” from when the central bank stops its bond-buying program geared at keeping rates low. She is expected to halt the Fed's bond buying completely in October, which means she could be considering rate hikes in May or June.
In his speech, Carney has told trade unions he expects wages should start rising in real terms "around the middle of next year" and then accelerate higher. That would push up inflation in the U.K. and give Carney more justification for a rate hike. He also forecast unemployment should fall to 5.5 per cent.

Currently the Bank of England’s nine-member monetary policy committee is split on the issue of rate increases.

Last month, two members voted to move rates higher, but the rest said they wanted to see an improvement in wages and job creation.

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