Homeowners should expect interest rates to return to their pre-recession levels within a decade, the Deputy Governor of the Bank of England has warned.
Last week the Bank’s Governor Mark Carney suggested that even once borrowing costs rise, the “new normal” for them to settle at would be around 2.5% – significantly lower than the long-term average of 4-5%.
But in an exclusive interview with Sky News Sir Charlie Bean, the Bank’s longest-serving senior policy maker, said that this lower rate was only caused by a range of temporary factors.
Sir Charlie said that in the “long term”, meaning beyond five or ten years, it could easily rise again towards 5% – the level traditionally considered “neutral”.
“It might be reasonable to think that in that long term you would go back to 5% but it’s probably quite a long way down the road,” he said.
Sir Charlie’s comments will be welcomed by savers who have suffered ever since the Bank lowered interest rates to just 0.5% five years ago.
However, they may also alarm millions of mortgage holders who may struggle to make their repayments.
The deputy governor, whose term comes to an end on Monday, also said that markets’ expectations that the first increase in interest rates would come at the turn of the year seemed “reasonable”.
He added: “The market has rates going up to 2.5% over the next three years. That seems like broadly sensible judgement.”
Sir Charlie also admitted that in the run up to the crisis he, along with other economists, was “not sufficiently cognisant of the risks building up in the financial system”.
However, he said that he was leaving the Bank in safe hands, and the economy far more resilient than when he arrived in 2000.
Source Article from https://uk.news.yahoo.com/rates-return-pre-recession-levels-201317872.html
Rates 'May Return To Pre-Recession Levels'
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