UK interest rates ‘may rise to 3%’

<p>Interest rates in the UK could increase to three per cent.</p>

The UK's base rate of interest could eventually rise to as high as three per cent in the next few years, according to Charlie Bean.

Mr Bean, who is leaving the post of deputy governor of the Bank of England, suggested interest rates could be increased earlier than anticipated. Some commentators have claimed rates will go up in the first six months of 2015, but others say it could be even longer until there is a rise.

Interest rates in the UK have been at a record low for the country of 0.5 per cent since March 2009, despite the country's economic recovery picking up pace in the last few months.

Mr Bean told BBC Radio 4's The World This Weekend he believes there could be economic advantages to increasing the UK's base rate earlier than planned.

He said: "The bank rate averaged about five per cent in the decade or so before the crisis. It's reasonable to think that given the headwinds that are still out there as well as some the global forces that perhaps the level that we go to three or five years out might a couple of percentage points below that."

MPC vote

The last meeting of the Bank of England's Monetary Policy Committee resulted in a unanimous vote to hold interest rates at 0.5 per cent for another month. However, the minutes from the meeting appeared to indicate the group were closely considering a rate rise in the near future.

Mr Bean added: "There's a case for moving gradually because we won't be quite certain about the impact of tightening the bank rate given everything that has happened to the economy."

Increasing interest rates will affect mortgage customers and savers and is likely to have a knock-on impact on the UK's general economic health in the coming years. Fears a rate rise could affect the economic recovery have been forefront in the decision to keep rates at a record low of 0.5 per cent for the last five years.

Find up to date information on the FTSE 100 and spread betting strategies at City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.