Bank of England governor Mark Carney hinted on Tuesday that the bank could raise its main interest rate from a record-low level in early 2015, citing the country’s solid economic recovery.
“You can expect interest rates to begin to increase,” Carney said in a speech on the economy to union leaders in the city of Liverpool, northwest England, adding that the BoE’s forecasts tallied with market expectations for a rate rise in the spring.
“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 two percent by the end of the forecast and a further 1.2 million jobs would have been created.
“In other words, we would achieve our mandate,” Carney added in an address to the annual conference of the Trades Union Congress (TUC), the umbrella group for British unions representing 6.2 million workers.
The BoE voted last week to hold its key interest rate at half a percent, in its first meeting since divisions emerged over when to tighten policy.
The central bank’s nine-strong monetary policy committee opted also to keep the level of cash stimulus, or quantitative easing (QE), at £375 billion ($622 billion, 473 billion euros).
In contrast, the European Central Bank has cut its key interest rate to a historic low of 0.05 percent from 0.15 percent as it battles the threat of deflation, or falling prices.
Both the British and eurozone central banks are worried about unduly low inflation — but the ECB’s outlook is compounded by sluggish economic growth.
British borrowing costs have meanwhile stood at the record-low level since March 2009, when the BoE launched also its QE asset purchase scheme to aid recovery following the global financial crisis.