Giving a speech at the Lincoln Cathedral on Thursday evening, the governor of the Bank of England Mark Carney said in order to achieve the inflation target of 2%, the MPC would need to gradually increase the Base Rate, which is currently at a record low 0.5%.
Mortgage rates have dropped to historic lows in recent months with the lowest fixed-rate deal on the market currently offered by the Post Office at 1.05%.
Carney said the path to achieving an interest rate rise was more important than setting out a precise time for the first rate increase, but said it was likely to shift in the new year.
“The MPC’s intention is to return inflation to target in a sustainable manner within two years. That means setting Bank Rate to eliminate the remaining slack in the economy, bringing about the sustained increase in costs necessary to achieve overall inflation of 2%,” he said.
“It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”
Earlier this week Carney suggested the UK was moving closer to a rate rise but warned that borrowers should not expect interest rates to return to levels seen prior to the financial crisis.
