As the United States, Canada and the European Union continue to suppress the interest rates and delay any hike, the Bank of England’s (BOE) Mark Carney hinted that the British central bank would begin to raise rates starting in spring of next year. This would be the first time the country has raised rates since the economic collapse a few years ago.
The central bank governor explained his position Tuesday by noting that it’s likely the BOE will meet its inflation targets and employment objectives if it begins to hike its benchmark interest rate sometime in the second quarter of 2015.
Speaking to labor union members in Liverpool, Carney stated that the exact timing of the rate hike would be determined upon wage increases in the coming months. He attempted to reassure the audience that any boosts to the interest rate would be “gradual and limited.”
“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,” Carney said, according to the Dow Jones Business News. “In other words, we would achieve our mandate.”
Carney, the former head of the Bank of Canada, averred that England’s economic recovery has surpassed expectations and can continue with the impetus to grow. It will be up to him and eight other members of the Monetary Policy Committee to decide on a rate increase from its current 320-year low of just 0.5 percent.
If the BOE moves ahead with a rate increase, it would become one of the first developed countries to do so. Although the Federal Reserve is tapering its quantitative easing measures, it is still maintaining record-low interest rates. The ECB, meanwhile, has decreased its deposit rates to negative territory and has put forward a two-part stimulus package to invigorate the eurozone economy.
The BOE head also discussed monetary policy in relation to the political environment – England faces a national election on May 7, 2015. Carney stated that central banking officials are “absolutely indifferent” to politics.
“We’re absolutely indifferent to the political cycle, to who’s in government, who might be in government, who was in government,” Carney told the crowd. “We manage monetary policy to achieve (an inflation) target and if we need to raise interest rates – or lower them for that matter – before a vote, election, referendum or anything, we will do what is necessary to achieve that target.”
Soon after Carney left the Bank of Canada last year, he was celebrated by officials who said that he saved the country from a significant banking crisis and left the nation’s economy in a superb state. His detractors, however, argue that he kept interest rates too low for too long as it has hurt savers and retirees, while also producing an overheated housing market and creating a debt-laden environment.
