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
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
News
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

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project