The Bank of England hinted on Wednesday that interest rates may need to start rising in just over a year as it broadened its guidance on when it will consider the economy to be healthy enough to cope with higher borrowing costs.
The BoE sharply revised up its forecasts for growth over the next three years, recognizing the surprise transformation of Britain’s growth prospects in 2013.
It said market expectations of a rate hike in the second quarter of 2015 – around the time of a general election in May – were in line with its aim to keep inflation at 2 percent.
But the BoE also said there was enough spare capacity, or slack in the economy, for now to keep rates at an all-time record low level of 0.5 percent without risking a surge in inflation.
It added that any increases in borrowing costs would be gentle.
“The message to businesses, to households is that the Bank rate is going to follow a path that is consistent with jobs, with incomes and with spending growing in a sustainable way,” Governor Mark Carney said.
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