Speaking to the Treasury select committee, the governor of the Bank of England said: “We recognise the sensitivity to rising interest rates given the indebtedness position of households. That is one of the reasons why the path of interest rates is likely to be limited and gradual.”
The Canada-born governor, who has been at the BoE for almost a year, said a significant and rapid rise would be detrimental to the economy. He said: “The impact would be that we would not return the economy to balance and we would not keep inflation at target.”
With interest rates expected to rise before the end of the year, the governor said the exact timing of any rise will be driven by the data and would be a gradual process likely to be materially lower than historical averages.
He said: “What is most relevant to entrepreneurs and business people, as for households, is not the timing of the first interest rate move but the expected path of interest rates over the medium term.”
Conservative MP Mark Garnier asked Mr Carney whether, if asset or house prices had been included in inflation targets prior to the crisis, “the crisis would have been averted and the house price asset bubble would not have been created”.
Mr Carney replied: “I do not think so. It would have been a mistake to include house prices in the Consumer Price Index. The causes of the crisis on the public side have more to do with the failure of regulation, supervision and absence of macro credential policy.”
Adviser view
Andy Wilson, director of Lincolnshire-based Andy Wilson Financial Services, said: “This does not sound like anything new – most people are expecting gradual rises when it comes. I think the rise will be in spring 2015, as the industry is expecting the bulk early next year.
“Signals coming out are that it will not happen this year as the economy has not recovered enough. It has always been that way, so it is not scaring a lot of people at present. There has been more of an impact on house-buying confidence on the back of the Mortgage Market Review than concerns over interest rate rises.”
