Europe Economy

Bank of England's Mark Carney: Rates will rise despite inflation dip


British interest rates will have to rise despite an expected dip in inflation but the exact timing of the hike is uncertain and any moves are likely to be gradual, Bank of England Governor Mark Carney said in an interview published on Wednesday.

Carney, speaking to the Birmingham Post, stuck close to the message that he gave last month alongside updated economic forecasts and said inflation was still expected to dip below 1 percent in the coming months before starting to accelerate.

Read MoreBank of England maybe changing stance on rate hikes

Mark Carney, Governor of Bank of England.
Jill Harding | CNBC

"What that means though, for this economy to have balance and inflation to get back to two percent over the next few years, is that ... interest rates are going to have to increase," he was quoted as saying.

"We don't know the precise timing that will start, but what we are emphasising ... is the path of interest rate adjustments ... is expected to be a gradual set of interest rate increases and to a more limited extent than the past," he added.

Economists polled by Reuters do not expect the BoE to raise rates until the third quarter of next year as a slowdown in growth in the euro zone and big falls in oil prices reduce short-term price pressures.

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BoE keeps base rate remains unchanged

Carney has voted against raising rates since he took over at the BoE last year, but in a speech earlier on Wednesday Ian McCafferty, one of two policymakers in favour of higher rates, said wages might be starting to pick up, bolstering the case for a tightening of policy.

Carney cited weak export markets, a financial sector that had not fully recovered from the crisis and ongoing pressures from government austerity measures as reasons to expect future rate rises to be gradual.

However, British economic growth is forecast to remain strong. The BoE expects an expansion of 3.5 percent this year, the fastest in a decade, before a slowdown to 2.9 percent in 2015.

Read MoreBoE holds fire as wage growth weighs

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