UK interest rates 'on track' to rise in November for first time in decade, Mark Carney says

Financial markets are now pricing in a high probability that the Bank of England's Monetary Policy Committee will put up rates to 0.5 per cent when it next meets in November

(Bloomberg (Bloomberg)

The Bank of England Governor, Mark Carney, has cemented the impression that the Bank is set to raise interest rates in November for the first time in a decade to curb inflation.

In an interview with the BBC's Today programme on Friday morning the Governor said that the UK economy was "on track" for a hike in the cost of borrowing.

"What we have said, that if the economy continues on the track that it's been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat," he said.

The Bank cut rates to a new record low of 0.25 per cent in the wake of the June 2016 Brexit vote.

But inflation in August hit 2.9 per cent, almost 1 percentage point about the Bank's official 2 per cent target, and is expected to go above 3 per cent in the coming months.

The Bank's Monetary Policy Committee (MPC) signalled in the minutes of its September meeting that it is concerned that, without a rise in rates, inflation could get out of hand.

It is also more pessimistic about the productive potential of the UK economy, estimating that it has a lower "speed limit" than previously thought

"If the speed limit has slowed and we're in a position where we've used up a lot of the capacity in this economy...it means that we should be thinking about, and we are open about this, we're thinking about taking our foot a bit off the accelerator," Mr Carney said.

Financial markets are now pricing in a high probability that the MPC will put up rates to 0.5 per cent when it next meets in November after its September minutes mooted a rate hike "over the coming months".

Asked directly about the timing Mr Carney said: "I think the indication that the MPC has given is about as clear an indication as one can expect."

The Bank's chief economist, Andy Haldane, said in an interview earlier this week that a rise in rates should be considered "good news", despite the fact that it will mean higher repayments for people in variable rate mortgage.