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Reuters

Bank of England Governor Mark Carney said on Tuesday  that the time for a first British interest rate increase since the financial crisis was getting closer as economic recovery gathers momentum.
Speaking to British lawmakers for the first time since May's national election, Carney said households should start to prepare for higher borrowing costs, though the central bank would only raise rates slowly.
"The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counter-balanced somewhat by disinflation imported from abroad," Carney told a parliamentary committee.
Carney has been saying that a rate rise is getting closer for more than a year, and on Tuesday he said there would inevitably be "shocks and adjustments" ahead. But investors reacted to his comments by pushing up the pound and selling government bonds.
British gilt futures fell nearly 30 ticks from their level before Carney's comments, but then pared most of those losses. Yields on 30-year gilts rose to close to an eight-month peak.
Sterling jumped by more than a cent against the US dollar.
Carney said the strengthening in sterling against other currencies was helping to keep inflation low but was not the dominant factor for the outlook for prices.
The BoE has held rates at a record low of 0.5 per cent for more than six years. Investors mostly expect a first rate increase in mid-2016, although economists have said it is likely to happen earlier in the year.
Carney also repeated his view that British interest rates would not rise to their levels before the financial crisis.
"I do think there are a variety of factors that mean that the new normal, certainly over the policy horizon over the next three years, is substantially lower than it was previously," he told parliament's Treasury Committee.


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Bank of England's Mark Carney says time for rate rise is 'moving closer'

Carney said households should start to prepare for higher borrowing costs, though the central bank would only raise rates slowly. Photo: Reuters

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