Interest rates at 2.5% will be the “new normal”, says Carney

A 2.5% interest rate could become the “new normal” Mark Carney said this morning.

The Bank of England governor said rates will start to increase, levelling off at 2.5% in 2017.

A rate of 5% has been considered as normal before the financial crisis, but Carney said things had changed to the point that it was almost impossible to raise rates to that level.

“The big picture,” he said, “is not whether the Bank Rate goes from 0.5% to slightly above that lowest ever level.

“That’s not the big picture, the big picture is where interest rates go in the medium term, because if I am taking out a mortgage and if I am thinking of investing in a new plant, if I’m thinking about taking on new people. That’s what I’m thinking about.”

The governor said the slow increase was because he thought interest rate movements would have a bigger impact on household spending than in the past.

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Readers' comments (1)

  • One of the unintended consequences of keeping interest rates as low as they have been for so long. Consumers and businesses adjust rather quickly to the 'norm' and a rise to anything over 5% would be unacceptable over the next 10 years. It will likely take another financial crisis to get rates back up to where they were. Natural selection, survival of the fittest, call it what you will but this is a good thing for everyone. Now we need to see an end to extended business credit. 30 days is fair enough (almost) but 60, 90 and 120 is taking the p**s.

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