With the unemployment rate falling faster than anyone imagined (particularly the BOE and IMF) and UK growth being refreshingly higher than any other country in the Q7, Mr. Carney is using the method of announcing the prospects of higher interest rates ahead of actually doing so. This has all the advantages of raising interest rates without the disadvantage that it may have on the growth of the economy and confidence.
Mervin King used to do this when he was Governor and it was very effective. The mere spectre of higher interest rates will start to have the desired effect on controlling the money supply before any changes are implemented.
Personally, I don’t believe that there will be any interest rate rise this year, given that inflation and money supply is under reasonable control, and in fact, there are signs now that even the housing market is starting to cool.
Sustainable growth in the housing market is an important factor in keeping the recovery on-track, particularly given the fact that it is a consumer led recovery so Mr. Carney does not want to put the ‘dampeners’ on this totally, since it will work against his desire to keep the UK economy growing predictably.
In any event, small upward increases to interest rates have already been factored in by the consumer and should not affect the average mortgage rate by much, trusting of course, that the mortgage companies and banks are reasonable with their margins.
As to Vince Cable’s desire to keep mortgage applications limited to 3½ times salary, he needs to update his information since when this rule was first mooted it was based on one income earner, per family, and nowadays there are two incomes per family, since wives/partners usually have a career and an income stream as well. So in today’s modern world the responsible multiple is more than 3.5. Wakey, wakey, Mr Cable! Keep up!