The Bank of England should move sooner than later to hike the interest rates as opposed to doing so in piecemeal increases, said the central bank’s Deputy Governor Charlie Bean in an interview with BBC radio.
However, Bean also said that it is not good to hike the interest rates so soon so as to ensure the economy fully recovers. BoE has maintained interest rates at an all-time low of 0.5 percent for over five years in order to ensure the economy fully emerges from the downturn occasioned by the 2008 financial meltdown, reported Reuters.
Bean revealed that he expects the Bank Rate to stabilize at around 3 percent about 3 to 5 years from now, which is still considerably lower than the pre-recession figure of 5 percent. BoE has hinted that the interest rates may be increased in about 12 months’ time.
UK’s GDP is expanding at a yearly rate of around 3 percent, the most of all the Group of Seven nations, though the economy is yet to fully reach its size before the recession. Bean clarified that the central bank intends to hike the rates gradually owing to uncertainty as to how the economy will react to this.
“It might not operate in quite the same way as it did before the crisis. So that’s an argument if you like for being a bit cautious, moving in baby steps to avoid making mistakes,” said Bean. “But of course if you want to pursue that strategy, then that would say, well, you need to start taking those baby steps a bit earlier, otherwise you end up being behind the curve.”
Bean, who retires in June, also stated that BoE is keenly analyzing the housing market. He revealed that BoE’s Financial Policy Committee is focusing on risks of huge debt pileup as opposed to growth in home prices. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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