Bank of England governor Mark Carney forecasted that UK interest rates could rise at the turn of the year on his visit to Lincoln on July 16.
In a speech at Lincoln Cathedral highlighting the relevance of Magna Carta, 800 years on, Carney indicated that the 0.5% borrowing costs which have been in place for six years were about to come to an end.
Interest rates in the UK have not risen since the global financial crash but the governor said that he expected rates to rise over the next three years, reaching “about half as high as historical averages”, or about 2% by 2018.
However, any such changes to interest rates are determined by the performance of the UK’s economy in upcoming years.
Carney said: “Short term interest rates have averaged around 4.5% since around the Bank’s inception three centuries ago.
“It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.
“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”
The governor also explained in his hour-long speech how Magna Carta and its economic context still partly shapes the Bank of England’s decisions.
He added: “The enduring legacy of Magna Carta is how its strictures on unconstrained power are reflected in our systems of political and economic governance.
“Specifically, the costs of inflation were among the key economic catalysts of Magna Carta, and its core constitutional legacy – namely the importance of delegated authority, with clear lines of public accountability – is at the heart of the Bank of England’s institutional arrangements.
“In the spirit of Magna Carta, the Bank of England has been given a great responsibility: to deliver monetary stability for the good of the people of the United Kingdom.
“Our goal, the 2% inflation target, is set by the government, and we operate under constrained discretion in its pursuit.”