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.”

PROMOTED VIDEO
News
video
Arts and Entertainment
Jimson Weed/White Flower No 1 by Georgia O'Keeffe
art
Sport
Robin van Persie leaves the field at the King Power Stadium last Sunday
football
Arts and Entertainment
tvPresenter back after daughter's Halloween accident
Arts and Entertainment
Martin Freeman and Benedict Cumberbatch as John Watson and Sherlock Holmes in Sherlock
tv

Co-creator Mark Gatiss dropped some very intriguing hints ahead of the BBC drama's return next year

News
people

London 'needs affordable housing'

News
In this photo illustration, the Twitter logo and hashtag '#Ring!' is displayed on a mobile device as the company announced its initial public offering and debut on the New York Stock Exchange on November 7, 2013 in London, England. Twitter went public on the NYSE opening at USD 26 per share, valuing the company's worth at an estimated USD 18 billion.
news

Arts and Entertainment
Timeshift: The Ladybird Books Story (9pm BBC4 Sun 22 Dec)
BooksLadybird drops branding books for boys and girls
Arts and Entertainment
music Band accidentally drops four-letter description at concert
Life and Style
tech
News
peopleIan Thorpe addresses Ricky Martin rumours
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

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines