For more than five years, British interest rates have been at their lowest for more than three centuries. Even during and after the Great Depression, interest rates never went below 2%. But in March 2009, they were cut to 0.5%, part of the £1tn mix of special liquidity measures, asset guarantees, quantitative easing and bank recapitalisations that had to be deployed to save the British financial system .
Last Thursday, Mark Carney, governor of the Bank of England, signalled in his Mansion House speech that this extraordinary phase of our monetary history was coming to an end. Unemployment is 6.6%; the economy is growing at an annualised 4% and house prices have surged. The arguments on interest rates, said Carney, are finely balanced and they could rise sooner than the market expects in other words, this year. The Bank of England is keen to signal that when the rises come they will be gradual, and that it expects them to settle at 2% or 3% rather than around the 5% norm typical for the decades up to 2008.
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