However, he emphasised that this would be a limited and gradual process as the bank begins to ease its “foot off the accelerator” of the UK economy.
Carney also warned about lenders becoming more reckless in their consumer credit lending, including credit cards and car finance.
Speaking on the BBC’s Today programme, Carney said: “If the economy continues on the track that it has been on, and all the indications are that it [will], in the relatively near term we expect that interest rates will increase somewhat.
“But we’ve also said we are in a circumstance globally and certainly in the UK, we’re talking about just easing our foot off the accelerator to keep the speed limit of the economy. And so interest rate increases, when and if they come, will be to a limited extent and gradual.”
Regarding household lending, Carney insisted that there was not a personal debt bubble but criticised lenders for an increasingly liberal approach.
He chastised lenders for a “shift from what has been responsible lending towards reckless lending”, where they had not been exercising disciplined underwriting and pricing.
“We’re worried about an emerging pocket of risk in consumer debt – credit card, debt for cars, personal loans that has begun to grow fairly rapidly,” he continued.
“We think banks have been giving too much credit for a relatively good economic environment and not being as disciplined as they should be in their underwriting standards and their pricing on this debt. And so the advantage of the system we have now is we can identify this overall risk and the Prudential Regulation Authority (PRA) can do something about it as the supervisor of the banks.”
Carney warned that there was the possibility of the PRA needing to take action to tackle this problem.
He added: “It is getting a little frothy and should be addressed and we have the tools to address it.”