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Low interest rates ‘unsustainable’

Low interest rates ‘unsustainable’

Category: Economy

Updated: 21/06/2013
First Published: 21/06/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Governor of the Bank of England (BoE) has called for the Government to prepare ahead for a rise in BoE base rate.

The measure has remained at 0.5% since March 2009; however, Sir Mervyn King has said that keeping the rate at this historic low is unsustainable, warning that such extraordinary monetary policy could not continue indefinitely.

"The challenge in returning to normality is not so much managing market expectations when that eventually happens, important though that is, but in creating the economic conditions in which it is sensible to return to more normal levels of interest rates," he said.

During his speech at the Lord Mayor's Banquet, Sir Mervyn welcomed the Government's plan to return the state-owned banks, Royal Bank of Scotland and Lloyds TSB, to the private sector.

"The two biggest lenders to the domestic economy remain largely in state ownership. It is difficult to imagine a banking sector like that making a real contribution to any economic recovery. It must be time for decisive action," he said.

Sir Mervyn also reiterated his confidence in his successor, former Bank of Canada governor Mark Carney, who replaces him at the end of this month.

"The Bank of England is in safe hands, and the country will be the better for it."

Reflecting on his time at the Bank, Sir Mervyn said: "It turned out to be a rather exciting and dramatic game, full of incident, with a red card or two and a passionate and at times justifiably angry crowd."

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