Bank of England’s Carney: rate rise ‘getting close’

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The Bank of England is getting nearer to raising interest rates, but the exact date will depend on economic data, Governor Mark Carney said in a speech on Thursday.

Carney stuck close to previous remarks on monetary policy in his address to actuaries, much of which focused on the BoE's plans for further regulating insurers.

Britain's economic outlook was much improved, and a rate rise was only a matter of time, Carney said.

"The point at which interest rates ... begin to normalise is getting closer," he said. "In recent months the judgement about precisely when to raise Bank Rate has become more balanced. While there is always uncertainty about the future, you can expect interest rates to begin to increase."

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Most economists expect the Bank of England to raise rates early next year, though a minority see a chance of an increase in November. Two members of the BoE's Monetary Policy Committee voted for a rate rise this month.

Britain's economy looks set to grow by more than 3 percent this year - faster than any other big, advanced economy - and unemployment has fallen to its lowest level since 2008.

But inflation of 1.5 percent is well below the BoE's 2 percent target, and wages are growing even more slowly - something the BoE has cited as a reason to keep rates on hold.

Carney said that when rate rises did come, he expected them to be gradual, and for rates to peak below pre-crisis levels.

"Headwinds facing the economy are likely to take some time to die down," he said. "Demand in our major export markets remains muted. Public balance sheet repair is ongoing. And a highly indebted private sector is likely to be particularly sensitive to changes in interest rates."

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Even after these problems are past, slow global productivity growth and requirements for banks to hold more capital could cause central banks to keep rates comparatively low, he said.

Insurers also needed to guard against the danger that markets were mispricing risk, and that the prices of some assets owned by insurers could fall sharply unexpectedly.

Other dangers included Britain's housing market, and low interest rates driving an influx of external investment into insurers, prompting the sector to take excessive risks.

"In effect, a 'soft cycle' in financial markets is reinforcing a 'soft cycle' in insurance - a particularly problematic combination," Carney said.

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