Bank of England  

Carney says rate rise is on the way

Carney says rate rise is on the way

Interest rates in the UK may rise as soon as next month as Mark Carney said the economy has “bounced back” from the slowdown at the start of the year.

The Bank of England's governor was speaking at an event in Newcastle, where he said the economic data over the past month has been “positive” and validates his previously held view that the weak first quarter GDP growth in the UK was largely the result of weather conditions.

The UK economy grew by just 0.1 per cent in the first quarter of 2018.

He had previously told the Treasury select committee that the view of the Office for National Statistics (ONS) that the economic weakness was not weather related.

Mr Carney said the “central case” the Bank of England has in relation to Brexit is that it will be a “relatively smooth” exit.

If that scenario plays out, he said the Bank of England will then judge the need for interest rate rises based on more traditional measures, such as whether the level of demand in the economy is rising at a faster pace than the level of supply.

He said the Bank of England’s present judgement is that demand is rising faster than supply, those are the conditions economists believe will lead to higher inflation, and justify an interest rate rise.

Mr Carney said such a rise in the near term is “justified.”

Tom Wells, who runs the Smith and Williamson Global Inflation linked bond fund, said he expects interest rates to rise in August as it may be that the central bank will want to put rates up before the UK formally exits the EU, to allow the Bank of England to put rates back down again if Brexit works out worse than feared.

 david.thorpe@ft.com