30th June 2014
Interest rates could rise as high as 5% over the coming decade a senior Bank of England figure has urged.
In an interview with Sky News, deputy governor for monetary policy Sir Charlie Bean, who steps down from his role this week, said he believed it was “reasonable” to foresee the base rate moving up to pre-recession levels over the coming 10 years.
“It might be reasonable to think that in that long term you would go back to 5% but it’s probably quite a long way down the road,” he said.
The Bank of England began cutting the base rate when the financial crisis hit in 2007 and it has now been at its historic low of 0.5% since March 2009.
Just last week however Bank of England boss Mark Carney suggested that when the cost of borrowing starts to rise, the “new normal” would be around 2.5%, well below the long term average of 4-5%. The deputy governor, also said that expectations that the first increase in interest rates would come at the turn of the year seemed reasonable.
He added: “The market has rates going up to 2.5% over the next three years. That seems like broadly sensible judgement.”
In the Sky News interview Sir Charlie also said that in the run up to the crisis he, along with other economists, were “not sufficiently cognisant of the risks building up in the financial system” but he added that the UK’s economy was now in far better shape than when he started his job at the Bank in 2000.