26.05.201405:07:18UTC+00Sooner than expected UK interest rate hikes possible

Ever since March 2009, during the time of the global financial crisis, the interest rates of the UK has been on a record low of 0.5%. Mark Carney, Governor for the Bank of England, has earlier stated that an increase will likely only be entertained when the economy is ready, which may not be until 2015, still several months away. Now arguments are being brought out for that schedule to be shifted earlier.

Carney’s announcement near the beginning of the month of no impending hikes was motivated by a cautious mindset brought upon by a newly recovering economy.  His original comment stated that, “We should remember the economy has only just begun to head back to normal. The exact timing of the first adjustment of Bank rate will be a product of the evolution of the economy.”

The central bank’s outgoing deputy governor, Charles Bean, however, believes that there is enough of an argument to raise the interest rates earlier than what was originally planned, although it will have to be in increments akin to “baby steps.”

Been and other members of the bank’s committee handling monetary policy believes that a scenario where interest is raised without upsetting the fragile economy is possible. They argue that if the hitching up of rates are spread out in a longer length of time by doing it sooner rather than later and in small enough amounts, it can smoothen any negative impact of the change.

Within a few years, Bean predicts that the interest rates will settle at around 3%, lower than the 5% average during the decade before the financial crisis. Interest rates are of great interest to investors as it can have significant effects on the currency and, indirectly, stock markets.

Nevertheless, Been agrees that a cautious approach is necessary. “One of the risks about moving too early is that you potentially forgo some activity that you might otherwise have had,” he says.

Other factors impacting the British economy to watch out for include the crisis in Ukraine, the shadow banking present in China, and the US Federal Reserve’s unexpected early return to its normal monetary policy.