Bank cautions that ‘more frequent’ rate increases could still be on the way

Mark Carney

Economic growth has been subdued since the UK voted in June 2016 to leave the EU and markets are forecasting just one interest rate increase by 2021.

However, Mr Carney said this could well change once business leaders know what the post-Brexit landscape will look like.

Greater certainty could lead to inflation and growth pick-up and therefore a rise in interest rates, Mr Carney said.

As expected, the Bank yesterday announced that it had kept interest rates on hold at 0.75 per cent following its latest policy meeting.

Interest rates have been at that level since last August, when the Bank raised them by a quarter of a percentage point.

But the Bank is expecting growth and inflation to pick up over the next two years.

In a news conference, Mr Carney said: “If something broadly like this forecast comes to pass… it will require interest rate increases over that period and it will require more, and more frequent interest rate increases, than the market currently expects.”

The Bank’s forecasts are based on a “smooth adjustment” to any new trading relationship with the European Union.

In its Quarterly Inflation Report, the Bank of England raised its UK growth forecast for this year, in part because the outlook for the global economy is a bit brighter.

The Bank now sees growth of 1.5 per cent this year, up from February’s forecast of 1.2 per cent.