Belfast Telegraph

Sunday 23 November 2014

'Prepare for interest rate of 5%'

Homeowners need to prepare for a series of interest rate rises to around 5%, a Bank of England official has warned
Homeowners need to prepare for a series of interest rate rises to around 5%, a Bank of England official has warned

Homeowners need to prepare for a series of interest rate rises to around 5%, a Bank of England official has warned.

Paul Fisher, who is a member of the Bank's rate-setting Monetary Policy Committee, said officials would like the current 0.5% base rate to rise to a "normalised" level 10 times as big.

But in an interview with The Daily Telegraph, he said "the speed at which that happens is another thing entirely".

Mr Fisher told the paper: "We hope people are aware that interest rates at some point will go up again and that they will head back to a normalised position.

"Now the speed at which that happens is another thing entirely. There's no reason why the pace should be more precipitative. We would only tightening quickly if the strength of the economy did demand it.

"So obviously we would not be putting up rates so quickly as to cause that sort of negative reaction. That's something we can try to anticipate and build in. So we would put rates up, see what the effect is and then judge how quickly to go."

Asked of the goal was to get interest rates to about 5%, he added: "Yes, but the reaction of people to those changes in rates is part of the process of information that we have to build into our forecasts and policy decision."

Mr Fisher said he did not think a change of either 0.25% or 0.5% was going to trigger a recession. "But what we need to do is to trigger the mindset in people that that's where rates will eventually go back to," he added.

Minutes of the Bank's December rates meeting revealed members of the MPC were split three ways again this month when they left the 0.5% rate unchanged. But there were increasing concerns among the committee over inflation after it rose again in November to 3.3%.

They said upside risks to inflation had increased, but added that the majority of MPC members continued to believe economic conditions would bring inflation back to target in the medium term.

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