Speaking at the World Economic Forum in Davos, Mr Carney said although his much-stated conditions for a rise were being met - namely a reduction of the UK unemployment rate to 7 per cent - there was more to policy decisions on rate hikes than just one figure.
The government released figures showing the unemployment rate was at 7.1 per cent at the end of December, which created speculation in the market that Mr Carney may raise interest rates. However, he stated there was “no immediate need” to do so.
However, despite the good news, the mortgage industry suggested borrowers should fix as soon as they could as lenders might not keep low-rate deals for long. Jeremy Duncombe, Director, Legal & General Mortgage Club, called this “change in direction” a reason for potential borrowers to “look at their options to tie into favourable deals while they still can”.
According to a four-page Bank of America Merrill Lynch Liquid Insight report, Mr Carney’s comments could suggest a run-off in its asset purchase scheme rather than any interest rate rises in the immediate future.
It said if the Bank of England stops gilt reinvestment, and decides to run down its gilt portfolio, this will act as a “mild form of policy tightening in order to defer the day when rates actually need to be raised: a gentle, early touch on the tiller”.
It said this would be better than suddenly selling a large amount of gilts into the market, potentially causing gilt rates to drop further.
Adviser View
Mark Ireland, financial planning consultant for Hertfordshire-based Richmond House Financial Services, said: “I can see why Mr Carney is not looking to raise rates immediately. The impact of rate rises would be felt by so many people for conflicting reasons. Savers will be overjoyed, especially the elderly who tend to have high cash savings and have essentially been eroding their capital over these past five years due to a lack of interest.
“Then mortgage holders will be worried about the cost of their mortgage going up if the rates rise dramatically or quickly. However, considering the government is trying to promote a healthy mortgage market with schemes such as Help to Buy, it might not be politically astute to put rates up. Although the BoE is independent, it still has to tread very carefully.”
