Bank of England governor Mark Carney says an increase in the base interest rate is “getting closer” but will not return to pre-crisis levels.
In a speech to the Trades Union Congress in Liverpool today, Carney said the UK economy is beginning to “normalise” and suggested interest rates could soon follow suit.
He said: “With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer.
“We have no pre-set course, however; the timing will depend on the data.”
Carney added that due to a variety of economic factors, including uncertainty in the Euro area and current levels of household debt, interest rates are unlikely to rise to levels seen before the credit crisis.
He said: “For a variety of reasons ranging from the weakness in the euro area, to ongoing repair of household balance sheets, we are not expecting interest rates to head back to the levels seen before the Great Recession.
“Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around 2 per cent by the end of the forecast and a further 1.2m jobs would have been created.
“In other words, we would achieve our mandate.”
Two out of nine monetary policy committee members voted for a 0.25 per cent increase at the August meeting, while minutes for this month’s meeting are released next week the committee voted last week to keep the rate at its current historic low of 0.5 per cent for the 66th consecutive month.