Mark Carney: ‘New Normal’ for UK Interest Rates Will Be 2.5%

Bank of England governor Mark Carney has said the “new normal” for interest rates is likely to be about 2.5% when rates start to increase.

Mr Carney suggested a return to “normal” interest rates of 5% was unlikely in the medium term. He said things had changed to the point that it was almost impossible to raise rates to their pre-recession level.

He also added that rate rises would be more gradual and limited than in the past.

The Bank governor explained the reason for a more gradual increase in interest rates was that the rate movements were likely to have a much bigger impact on household spending than in the past.

Mr Carney added: “Households have a lot of debt, the government is still consolidating its financial position, Europe is weak, the pound is strong and the financial system has been fundamentally changed”

“And as a consequence of those factors, in order to bring the economy back to full employment, in order to get inflation back to target, the new normal is materially lower than the old normal.”