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Mervyn King's warning over interest rates lifts pound
21.10.09
The pound soared today after Bank of England Governor Mervyn King stunned the City with a warning to Britons to prepare for interest rate rises.
Sterling rose 1.84 cents to $1.6566 and 1.45 cents to �1.1106 in one of its strongest days for months.
It came after King wrote in The Herald newspaper: "I do not know for how long interest rates will remain so low. But at some point they will return to more normal levels and it would be wise to take this into account in your financial planning."
Minutes from the Bank today showed all nine members of the monetary policy committee voted to keep rates at 0.5% this month. They also agreed to press on with £175 billion of quantitative easing.
While this was widely expected, the newspaper article stunned investors who saw it as a change of tack from the Bank.
Last month King said the fall in sterling was "helpful" for the UK economy.
Neil Jones of Mizuho Corporate Bank in London said: "King is turning and so is the pound. This is a seismic shift in thinking."
The Bank must next month decide whether to extend QE beyond £175 billion or pause.
Howard Archer of IHS Global Insight said the meeting "could well prove to be a "spiky affair" as MPC members argue over whether the economy needs further emergency aid or not.
"There remains a distinct possibility that the committee could decide to spend a further £25 billion on QE, taking the total up to £200 billion," he said.
Reader views (5)
I am glad that Mervyn King has come to realise that "interest rates WILL return to NORMAL LEVELS" Consider this, savers are the backbone of the economy, but there is no incentive to save, someone with £5000 of savings at 2.5% only receives £125 per year. When I started saving in the late 60s I could get 5% tax paid and it was worth saving for ones old age. Now that people realise that ALL the money which people pay into personal pension plans is taken oughtright by the pension provider on the death of the insured, So its even more important that people save as a Pot of Savings at death goes to the inheritors and is not lost to the pension provider, this is why rates need to go up, return the nation to being savers by higher rates, watch the money roll in and watch morgage lending go up as core bank deposits stop being propped up by the BOE.
- Nosmo King, Brighton
Now that USA and the UK have bankrupted themselves on the Alter of The World Bank....the REAL recession is due to hit in the next 2 = 3 years that will wipe out the UK and USA and allow the Bankers to buy and own everything for pennies in the poound as they did in the 1930's.
Best bet, clear all your debts get your money out the banking industry to something solid( Gold / Silver if you must ) ( food stores of staples to last for 3 years is a tip ) and then hope that mass Unemployment and hypo-inflaction do not lead to riots because then we will have Martial Law being imposed.
- Clif, London
Go for it Mervyn, get those rates up. 0.5% is a radiculous rate of interest and is causing more trouble than good.
- Nick Broad, Norwich UK
Did they not say the other day that interest rates are going to stay low for a few years to compensate the tax rises? I was told at school that Economics is an art not a science, more like making it up as you go along!
- Mattk, Ware
King is obviously feeling the pressure that he is no longer seen as in touch, and relevant as the MPC minutes also show. maybe he should stop making all these announcements, and get back to work?
- Scotty, London
