Bank of England governor Lord Mervyn King says it would be “premature” to raise interest rates now, adding they are set to remain low for some time to come.
Speaking at his final Treasury select committee hearing today, King said monetary policy should remain loose and defended the use of quantitative easing.
King, who is set to leave the role on 1 July, moved to calm global markets after a tumultuous week in which equities fell and Government bond yields rose on the back of signals by the Federal Reserve that it would start to unwind its QE programme.
He said: “The view that we are definitely at the beginning of the end and we definitely need to raise interest rates is a premature judgement about where we are.
“No central bank has rapidly moved down that course. The Federal Reserve has merely said that the easing with which it was still engaging may taper at some point depending on economic conditions.”
King added: “The idea we are about to return to normal levels of interest rates is premature. One of the reasons it would be premature to do it more quickly is precisely because households have high levels of debt.”
Lord King also praised the “landmark” parliamentary commission on banking standards report, published last week, and hit out at bank lobbying.
He highlighted the sector’s reaction to last week’s Prudential Regulation Authority report demanding banks fill a £13bn black hole in capital.
Lord King said some bank chief executives’ first call was to complain to Number 10 or 11 Downing Street after being told to raise more capital and it had “crossed the line” of acceptable lobbying.