Interest rates are going to rise and that is the consensus of every economist and expert.  What they disagree on is when the interest rate will rise.  Outgoing deputy governor, Charlie Bean, predicts that the interest rate will rise from 0.5% to 3.0% for the standard base rate in three years’ time.  The increase will be slow, steady and gradual and while it will not come in one hard hit it will likely catch many off guard, especially homeowners.

Mr. Bean made his prediction as to the future decisions of the Bank of England’s Monetary Policy Committee (MPC) in that they will use caution and increase the cost of borrowing slowly.  Some economists believe that the interest rate change by the MPC will be as early as the start of 2015 while others believe it will be sometime in the second quarter of next year. 

Much of the call for the standard base rate to increase comes from those that see the rising house prices as growing out of reach of buyers.  A house bubble could be on the make say others.  Such fears are that the housing market could slow down and falter the growth of the economy.  The MPC has assured they are watching the housing market closely as well as many other economic markers for the signs that it is the right time to increase the base rate. 

The MPC meeting in May ended with all nine members voting to keep the rate at 0.5% but there was a statement in the minutes that made reference that the more gradual a rate change needed the sooner it would have to begin to allow a gradual growth of the cost of borrowing.

The minutes read: “It could be argued that the more gradual the intended rise in Bank Rate, the earlier it might be necessary to start tightening policy.”