Mark Carney: Interest rates will rise to 2.5% within three years

 

Deputy Political Editor

Mortgage payers have been warned by the Governor of the Bank of England that interest rates are likely to increase five-fold to around 2.5 per cent over the next three years.

Mark Carney signalled that the era of ultra-cheap borrowing was coming to an end. The Bank’s base rate has been fixed at an historic low of 0.5 per cent for more than five years, but speculation has been growing that it will be raised as the economy recovers.

Mr Carney suggested that rates would stabilise around the level of 2.5 per cent rather than returning to their previous norm of about five per cent.

That could increase repayments on an average mortgage by about £2,400 a year, or £200 a month.

Stressing that increases in the borrowing rate needed to be “gradual” and “limited”, Mr Carney said 2.5 per cent was likely to become the “new normal”.

He said the financial markets were preparing for a rate of some 2.5 per cent in three years’ time.

“The Bank of England, which is at half a percentage point, historically would have moved to something akin to five per cent,” he told BBC Radio4 today.

Mr Carney said the first rise could take place this year, but said: “The big picture is not whether the Bank rate goes from half a percent to slightly above that lowest ever level.

“The big picture is where interest rates go over the medium term, because, if I’m taking out a mortgage, that’s what I care about. And if I’m thinking about investing in a new plant, if I’m thinking about hiring people, that’s what I care about, because those are the debts I have to service.”

Mr Carney warned that debt levels in Britain meant the economy remained “relatively vulnerable” to rate rises.

He said: “Our responsibility is to protect against major risks that can develop over time that can tip what is a promising economic expansion back into a recession. This is an economy that has just come off its worst recession in modern history, that is still relatively vulnerable. What’s happened in the recovery is that it has proceeded even better than we had expected.”

The Prime Minister’s official spokesman said it was important to have the right regulatory structure in place to oversee decisions on borrowing rates. He added: “The Government has sought to help all families where we can.”

Cathy Jamieson, the shadow Treasury Minister, said: “The danger is that George Osborne's failure to boost housing supply ends up forcing the Bank of England to raise interest rates prematurely to rein in our unbalanced housing market. This would hit millions of families and businesses across the country already struggling with a cost-of-living crisis.”

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style
tech

Apple has been hit by complaints about the 1.1GB download

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
A 'Sir Alex Feguson' tattoo
football

PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Arts and Entertainment
Actor and director Zach Braff
tv

News
i100
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
News
i100
Arts and Entertainment
The former Doctor Who actor is to play a vicar is search of a wife
film

Matt Smith is set to join cast of the Jane Austen classic - with a twist

Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
tv

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Life and Style
i100

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Property Underwriter

    £70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week