Speculation that interest rates could begin to rise again over coming months has been dismissed by the Governor of the Bank of England (BoE) Sir Mervyn King.
Addressing the Treasury Committee for the final time as Governor, Sir Mervyn warned that interest rates would remain the same for a long time yet and would only be raised once the economy showed signs of improvement.
Suggestions that interest rates could increase came about as a result of the US Federal Reserve announcing that it would be "tapering" its quantitative easing (QE) at some point.
Sir Mervyn stated that the news had been misinterpreted by some who believed the US would be ceasing any further QE, leading to an imminent increase in interest rates.
"I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn't," Sir Mervyn pointed out.
"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery markets understand that it will not be sensible to return interest rates to normal levels," he concluded.
Whilst expectations of an imminent rate increase were downplayed, the Bank's Deputy Governor, Charlie Bean, stated that a cut in interest rates could also still occur, subject to economic conditions.
"A reduction in bank rate, including below zero, remains an option which the Monetary Policy Committee will keep under review lest circumstance change in the future," he said.
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