The chancellor has warned the base rate is likely to increase this year but added it would be “wholly inappropriate” for him to pressure the Bank of England’s governor Mark Carney.
In a speech to business leaders in Cardiff yesterday (7 January), George Osborne stated with the US Federal Reserve having made their decision to raise rates last month, there is a discussion about how and when the UK begins to move out of a world of ultra-low rates.
“Let us be clear, higher interest rates are a sign of a stronger economy,” he said. “The job of government is to make sure we’ve got in place the policies to monitor overall levels of indebtedness across families and the wider economy, while backing savings too.”
Earlier in the day, Mr Osborne told Radio 4’s Today programme it would be “wholly inappropriate” for him to influence the timing of any increase in the base interest rate, from the historic low of 0.5 per cent, where it has remained since 2009.
He also mentioned the Financial Policy Committee, which was created to check overall levels of debt in the economy and deal with specific risks, such as the buy-to-let mortgage market.
“These steps are not always popular, but they do make our economy more resilient,” the chancellor stated.
Talking about the wider economy, he noted already in 2016 there has been “worrying news” about stock market falls around the world, the slowdown in China, deep problems in Brazil and in Russia.
Mr Osborne also cited commodity prices falling “very significantly”, with oil, which was more than $120 (£82) a barrel in 2012 dipping to less than $35 (£23) earlier this week.
“That is good for consumers and business customers here in Britain, bad news for the oil and gas industry, worrying for the creditors who have lent to it, and a massive problem for the countries that depend on it; and all of it adds to the volatility and sense of uncertainty in the world.”
He also raised another concern over demographic changes, pointing out that while there may be a global glut of savings, here in Britain not enough people on lower and middle incomes are saving for their retirement.
“That is why we’ve got a plan to change that: auto-enrolment – the scheme where employers enrol all employees into a pension – is having a huge impact: there are three million more people are saving into a pension compared to just two years ago.”
Mr Osborne also referred to the pension freedoms and increasing Isa limits, along with the introduction of the new Help to Buy Isa, which has already seen more than 140,000 people opening accounts.
“In April we are introducing our new state pension. It will be far simpler than the current system, more progressive and much fairer to women.
“It is all part of supporting saving for everyone, and there is more critical work to do in 2016.”