Interest rate of 3% could become new norm, suggests departing Bank of England man Charlie Bean
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Interest rates are likely to settle at around 3 per cent over the next three to five years, according to outgoing Bank of England deputy governor Charlie Bean.
His prediction that rates could hover at a lower level than during the pre-crash period came amid suggestions the move away from the historic-low 0.5 per cent base rate could begin sooner than expected.
Bean, the deputy governor responsible for monetary policy at the Bank, told BBC Radio 4's The World At One: 'The Bank rate averaged about 5 per cent in the decade or so before the crisis.
Rock bottom rates: Members of the Bank of England's monetary policy committee voted unanimously in favour of leaving interest rates on hold at 0.5 per cent earlier this month
'It's reasonable to think that, because of the headwinds that are still out there as well as some the global forces ... perhaps the level that we go to three or five years out might be a couple of percentage points below that.'
Members of the Bank's monetary policy committee voted unanimously in favour of leaving interest rates on hold at the same level since 2009 earlier this month.
But minutes of the meeting showed there was less agreement on the course for future rates. The first hike had been not expected until the second quarter of next year, or late in the first quarter.
Bean suggested it could start earlier with some 'baby steps'.
Bean suggested it could start earlier with some 'baby steps'.
'There's a case for moving gradually because we won't be quite certain about the impact of tightening the Bank rate given everything that has happened to the economy,' he said.
'It might not operate in quite the same way as before the crisis. So that's an argument, if you like, for being a little bit cautious, moving in baby steps to avoid making mistakes.
'But of course if you want to pursue that strategy you need to start taking those baby steps a bit earlier, otherwise you end up being behind the curve.
'But there are arguments on the other side. In particular, one of the risks about moving too early is that you potentially forgo some activity that you might otherwise have had.
'One of the key issues for us will be whether we see some recovery in productivity which has been unusually subdued in recent years.
'It may be that if we nip the recovery too early we won't see that productivity rebound.'
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