- POSTED: 23 Jul 2014 18:03
- UPDATED: 24 Jul 2014 01:51
The Bank of England needs to start hiking record-low interest rates in the coming months, governor Mark Carney indicated on Wednesday (July 23), adding that the economy was rapidly gaining strength.
LONDON: The Bank of England needs to start hiking record-low interest rates in the coming months, governor Mark Carney indicated on Wednesday (July 23), adding that the economy was rapidly gaining strength.
Carney, speaking at a Glasgow conference before the Commonwealth Games opening ceremony, said there was no "preset course" for when the central bank would start lifting borrowing costs, while any hikes would be "gradual and limited".
His comments came as minutes showed that the BoE's Monetary Policy Committee (MPC) were unanimous in keeping the bank's key interest rate at an all-time low of 0.50 percent earlier this month.
"The UK economy has been growing rapidly," Carney said on Wednesday in Glasgow.
"Over the past year, job creation has been the quickest on record, pushing unemployment down to 6.5 percent.
"The economy is finally producing as much as it did on the eve of the crisis in 2008, and inflation is back near its 2.0-percent target.
"In short, the UK economy is starting to head back to normal. As the economy normalises, bank rate will need to start to rise in order to achieve the inflation target.
"But the MPC has no pre-set course and the timing of any increases in interest rates will be determined by the data."
The bank's key task is to keep British 12-month inflation close to a government-set target of 2.0 percent. The rate accelerated to 1.9 percent in June.
Carney's remarks come before Friday's initial estimate of Britain's second-quarter economic growth. The economy grew by 0.80 percent in the first quarter of 2014, compared with the final three months of last year.
Earlier this month, policymakers had agreed unanimously to keep the BoE's main interest rate at a record-low level of 0.50 percent, according to minutes from their latest meeting published on Wednesday.
Members of the MPC, including Carney, voted 9-0 to sit tight at a gathering earlier in July as they weighed up economic recovery and low inflation in Britain against signs of weakening growth abroad.
Some analysts said, however, that the minutes indicated that the BoE had moved nearer to raising the rate, which has stood at half a percent for more than five years to aid Britain's recovery from the global financial crisis.
Carney added on Wednesday: "The MPC is supporting investment through clear guidance that it expects increases in bank rate, once they begin, to be gradual and limited.
"From my own experience visiting businesses up and down the country, including some in Glasgow earlier today, I know that businesses understand this message.
"This guidance puts all the short-term noise about when the first rate rise will be into its proper context and it encourages firms to hire and invest with an eye to the medium term."
At their meeting in July, policymakers also voted unanimously to maintain the level of BoE cash stimulus, or quantitative easing, pumping around the economy at 375 billion pounds (US$640 billion, 475 billion euros).