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Bank of England Governor Mark Carney warns interest rates will rise in the New Year

Interest rates could finally start to rise by the end of this year, providing long awaited relief for savers.

Carney told businesses and consumers that Threadneedle Street would have to respond to the economy’s stronger growth by announcing the first tightening of its policy since rates were increased to 5.75% in July 2007 [1]. This will put more pressure on borrowers who will have to pay more for mortgages and credit cards.

After the financial crisis, the Bank of England slashed its main rate to 0.5% in March 2009, to lower the cost of credit and help get the economy moving again. Before the crisis hit in 2007, rates were at 5.75%.

The current rate is set at 0.5%, the record low at which it has been kept for the last six years, will slowly rise over the next three years, expecting to hit 2.5% at its peak, Carney has said, which is still held their average historic norm since the bank was founded in 1694.

In a quote published by the Guardian, Carney commented:

“It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year” [2].

[1] Larry Elliott, “Interest rate rise set for new year, warns Bank of England governor,” www.theguardian.com
[2] Larry Elliott, “Interest rate rise set for new year, warns Bank of England governor,” www.theguardian.com