Interest rate rise a ‘reasonable’ expectation

Market expectations of a rise in borrowing costs at the turn of the year are “reasonable”, according to outgoing Bank of England policymaker Sir Charlie Bean.

Sir Charlie Bean: Expectations are broadly sensible. Picture: PA

Bean, who will be succeeded as the Bank’s deputy governor for monetary policy by Ben Broadbent tomorrow, also said that interest rates could rise to pre-crisis levels of about 5 per cent “over the very long run”.

In an interview published yesterday, Bean said: “The market has rates going up to 2.5 per cent over the next three years. That seems like a broadly sensible judgement.”

His comments echo those of Bank governor Mark Carney, who last week said a “new normal” for the base rate could be 2.5 per cent, a level he predicted might be reached by 2017.

Rates have remained steady for five years, but some economists had believed they could start rising from their record low of 0.5 per cent as early as November. However, concerns of an imminent hike eased last week as estimates of first-quarter economic growth were left unchanged at 0.8 per cent.

According to research firm Company Watch, which analyses the ­financial health of businesses, one in 20 firms are “highly at risk” from the effects of a rate rise as they have no funds in place to absorb an increase in the cost of servicing their combined debts of about £65 billion.

Its chief executive, Denis Baker, said: “Interest rates, having been at a low level for so many years, have left some companies ill-prepared for higher debt costs. For one in five companies, even a small rise of just 0.25 per cent might be difficult to meet.

“Our advice to companies is to make sure your key suppliers and customers are not going to be compromised by higher costs of debt, which now appear to be inevitable, either later this year or from early next year.”