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New normal for UK interest rates to be 2.5%

paulajohn
Written By:
paulajohn
Posted:
Updated:
06/03/2015

Bank of England Governor Mark Carney has said the ‘new normal’ for interest rates in the UK will be around 2.5%, a level he predicted they may reach by 2017.

Speaking to BBC Radio 4’s Today programme Carney said a return to ‘normal’ interest rates of 5% is unlikely in the medium term. He said things have changed to the point it is almost impossible to raise rates to their pre-recession level.

“The big picture is not whether the bank rate goes from 0.5% to slightly above that lowest ever level,” he told the BBC.

“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.”

Carney has already mentioned many times that any rate increase will be slow and steady, and he said as a result, rates were not likely to be any higher than 2.5% by 2017.

He said: “What I am telling you is that the old normal is not the new normal.

“Normal was a much higher level than we will get to in order to bring the economy back to full employment and inflation at target.

“So the Bank of England [rate], which is at half a percentage point would have historically moved to somewhere akin to 5%.

“If you look at financial markets their estimation about the next three years is around… let’s call it 2.5% – slightly lower or it can be slightly higher – we see that as not inconsistent with returning the economy to where it was before.”


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