Business

Mark Carney signals U.K. interest rates to rise by spring

Bank of England Governor Mark Carney has served notice that Britain's interest rates could start rising next spring.

Britain is in recovery and central bank expects wages to rise in 2015

Governor of the Bank of England Mark Carney told a group of trade union members wages could rise next year, pushing up inflation and setting the stage for a rate hike. (Associated Press)

Bank of England Governor Mark Carney has served notice that Britain's interest rates could start rising next spring.

In a speech delivered Tuesday to U.K. trade unions, Carney said there was no firm timetable for rate hikes, but he expects the bank would meet its inflation target if it started lifting borrowing rates gradually in the spring.

That is in line with what investors currently expect, and could dovetail or come slightly ahead of the U.S. Fed’s timetable for rate hikes.

Fed chair Janet Yellen has said rates might rise “six months or so” from when the central bank stops its bond-buying program geared at keeping rates low. She is expected to halt the Fed's bond buying completely in October, which means she could be considering rate hikes in May or June.

In his speech, Carney has told trade unions he expects wages should start rising in real terms "around the middle of next year" and then accelerate higher. That would push up inflation in the U.K. and give Carney more justification for a rate hike.

He also forecast unemployment should fall to 5.5 per cent.

Currently the Bank of England’s nine-member monetary policy committee is split on the issue of rate increases.

Last month, two members voted to move rates higher, but the rest said they wanted to see an improvement in wages and job creation.

In a new indication that Britain’s economy is recovering, the U.K.’s National Statistics Office reported today that industrial production expanded by 0.5 per cent in July and was up 1.7 per cent from a year ago.

Carney is former governor of the Bank of Canada, this country's central bank.Canada is unlikely to raise rates befor the Fed makes its move next year. 

with files from the Associated Press

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