U.K. likely to raise rates in 2016, Mark Carney says

Bank of England governor Mark Carney says U.K. interest rates may rise in 2016, but the central bank may move more slowly than previously forecast.

Carney left Britain's benchmark rate at 0.5 per cent on Thursday, the same level it's been for six years.

But on Wednesday, U.S. Federal Reserve chair Janet Yellen told U.S. lawmakers that a rate rise in December is a "live possibility," reiterating the impression created after the last Fed meeting that the U.S. was prepared to move on rates this year.

Carney told Bloomberg he believes the U.K. economy, which is forecast to grow at 2.7 per cent this year, may soon have the right conditions for a rate rise.  

"Would I rather have the majority of the British people thinking that rates are likely to go up in the next year, which is the case today? Yes I would, because that is reasonably prudent behavior, given the progress this economy is making," Carney said in an interview on Bloomberg Television.

"At some point, rates are going to move. It's not today, unfortunately."

Rates will have to go up to keep inflation on target, Carney said. The central bank would like inflation to be in the two per cent range, rather than the zero range it is running right now.

Canada, which has inflation nearing its target range but an economy growing more slowly than many would like, has a similar dilemma of when to move on rates. The only sure thing is that nowhere in the world will move until after the U.S. raises rates.

But in an interview with the BBC, Carney indicated a rate hike in the U.K. would not come as quickly as anticipated earlier this year.  

He warned the outlook for global growth had weakened since the bank's last inflation report in August and added that there was a risk of a "more abrupt slowdown in China."

Some economists believe inflation won't approach two per cent until 2017 and that could delay any rate hike for more than a year.

In the same way he gave "forward guidance" when he was governor of the Bank of Canada, Carney likes to signal when he might be about to move on rates to decrease market turmoil.