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Bank of England eyes earlier interest rate rises as recovery takes hold

Unemployment has fallen and growth forecasts are up for this year and 2014 making a rate rise more likely.

Bank of England governor Mark Carney says there is a 40 per cent chance his threshold for considering interest rate rises could be met by the end of next year.

Under his forward guidance plans, unveiled in August, Carney said interest rates should not rise until unemployment falls below 7 per cent unless inflation was consistently above 2.5 per cent.

In the Bank’s quarterly inflation report, published last week, Carney says there is a two in five chance the threshold could be reached next year, a 60 per cent chance by 2015 and a 66 per cent chance by the end of 2016.

It is a significant shift from August forecasts when the Bank gave a 25 per cent chance of meeting the threshold by the end of next year, a 40 per cent by the end of 2015, and rising to a 50 per cent chance in early 2016.

Office for National Statistics data, published last week, shows unemployment fell to 7.6 per cent in the three months to September.

The Bank also made significant upgrades to UK growth forecasts for 2013 from 1.4 per cent to 1.6 per cent and for 2014 from 2.5 per cent to 2.8 per cent.

Carney said the Bank would only consider interest rate rises when the threshold is met and it is not seen a “trigger for automatic increases”.

SPF Private Clients chief executive Mark Harris says: “Even if targets are met, there will still be good reasons to keep interest rates at 0.5 per cent. We still believe the first rate rise may not be until 2016. Borrowers should not panic.”

BoE

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There is one comment at the moment, we would love to hear your opinion too.

  1. A rise in interest rates may well force an unwelcome reassessment of the viability of building BTL property portfolios, as lots of people have been doing in recent times. The maths stacks up quite nicely in the current ultra-low rate environment, with people seeing good monthly profits on their investment. But that could all change very much for the worse in a short space of time and maybe lead to a glut of such properties coming back onto the market at asking prices that the sellers will find they simply can’t get. I may be wrong, of course, but history often repeats itself.

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