Interest rates ‘likely to rise next spring’

Martin Weale, a member of the Bank’s rate-setting Monetary Policy Committee (MPC), appeared to indicate the rate hike is likely to come before the May general election. It is the clearest indication yet from any of the MPC’s nine members about when borrowing costs will start to rise, and comes a week after it abandoned its “forward guidance” policy linking the cost of borrowing to unemployment figures.

Mr Weale told Sky News: “I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year. And then the path is likely to be relatively gradual.

“During an election campaign it would obviously be difficult (to change rates) but the election campaign will last for three weeks.”

Mr Weale added that a faster than expected pick-up in average earnings over the coming months would mean that an even earlier rise could not be ruled out.

The Bank slashed rates to 0.5 per cent in 2009 in the depths of the recession and they have remained at that level for five years to try to help the recovery gather pace.

But as an upturn in the economy has started to take hold, markets have become increasingly anxious about when rates will eventually start to rise.

Bank Governor Mark Carney introduced a new policy of forward guidance shortly after taking over at Threadneedle Street last summer to try to restore confidence to households and businesses. It pledged that the MPC would not even consider a rate hike until unemployment had fallen to seven per cent. At the time, policy makers did not expect this threshold to be reached until 2016 but since then the rate has fallen more quickly than it anticipated.