Pre-poll rate rise not ruled out
11:06am Thursday 3rd April 2014 in © Press Association 2014
Bank of England governor Mark Carney has refused to rule out a pre-election rise in interest rates, but admitted a hike in the cost of borrowing was likely to prove unpopular.
Mr Carney said any increase - which is likely to hit the pockets of millions of voters with mortgages pegged to the Bank rate - must take place "independent of the political cycle".
He insisted that a rise from the historic low of 0.5%, where it has been held for five years to help the nurse the economy back to health, should be seen as a welcome sign of a return to normality "after some very difficult years".
In an interview with the Northern Echo newspaper, Mr Carney accepted that a rate rise, while pleasing savers, was unlikely to go down well with many home loan borrowers.
But asked if he would rule out such a hike before next spring's general election, he said: "No, absolutely not."
The Bank's rate-setting committee has abandoned a policy linking the cost of borrowing to unemployment, but has indicated that it will instead be based on a more complex framework linking it to the output gap in the economy.
Mr Carney told the Northern Echo: "We have been as explicit as we can about the nature of adjustments to interest rates, but we can't be specific. But we are absolutely clear that it will happen independent of the political cycle.
"I'm not sure we will get a lot of cards or letters to thank us, but we will do it when it needs to happen."
He stressed that any rise would be gradual and added that despite unemployment falling more quickly than expected, there remained "slack" in the labour market "right across the country", more of which needed to be used up before any hike.
Mr Carney said the recovery in the economy had been "uneven" and needed to be seen across the country.
"The point is that if a recovery is just based in the South East, it is neither sustainable nor balanced, it has to include the North East. We are here to make policy for the UK as a whole."
His remarks on interest rates come after Martin Weale, a fellow member of the rate-setting Monetary Policy Committee, indicated that a rise in the cost of borrowing was likely next spring, and appeared to suggest it would come before the May general election.
Elsewhere in the interview, Mr Carney warned bankers that they needed to be more professional to repair their shattered image after the financial crisis.
"I'm not sure bankers need to wear sackcloth, but nor should they jump back into wearing Gucci suits," he said. "There needs to be an improvement in terms of banker conduct. Banking needs to be treated more as a profession."