August 09, 2018
Outgoing MPC member Ian McCafferty predicts rates below 5% and wages up 4%
The era of low interest rates will last for at least another 20 years, despite gently rising official borrowing costs in the coming years, one of the Bank of England’s leading policymakers has forecast.
Interest rates will stay low for 20 years – Bank of England expert
In a valedictory interview before leaving Threadneedle Street’s monetary policy committee (MPC) at the end of the month, Ian McCafferty said structural changes in the global economy meant UK borrowers and savers should get used to interest rates being “significantly” below the 5% average in the 10 years leading up to the financial crisis.
McCafferty said some of the factors that had resulted in global interest rates declining since the 1980s – including weak productivity and the build-up of savings by the baby-boomer generation – would eventually go into reverse. “It is too much to say never, that we won’t ever go back. But there is a 20-year horizon under which there will be factors keeping it low,” he said.
The long-term trend in global interest rates has an impact on the level of borrowing costs deemed necessary by the MPC to keep inflation in check and helps explain why official borrowing costs since early 2009 have been lower than at any time since the Bank was founded in 1694.
McCafferty said that while consumers and businesses should now be braced for further increases in their borrowing costs following last week’s increase, they would be limited and gradual. “Interest rates are going to be significantly below the 5% average in the first 10 years (1997-2007) of the MPC,” he said.
McCafferty, whose six-year stint as one of the four externally appointed MPC members ends this month, also said:
labour shortages would lead to an acceleration in wage growth to close to 4% next year;
the Bank of England had not left it too late to start tightening policy but would need to announce two quarter-point interest rate increases within the next 18 months to two years;
uncertainty caused by Brexit had affected businesses far more than consumers and was causing investment to be weaker than otherwise would be the case.
McCafferty said that despite the “potentially huge risks” from Brexit, the Bank would need to respond to evidence that the lowest unemployment rate in more than 40 years was creating widespread skill shortages.
“If the economy continues to evolve as we [the MPC] expect, we are not going to get back to 2% inflation unless we have a modest but gradual reduction in the stimulus that has been provided.”
McCafferty said the City was currently pencilling in two interest rate rises in the next two years but that the increases would probably be “front-end loaded”.
He added that the unusual amount of uncertainty – mainly associated with Brexit – meant it was impossible to be definitive about the timing of future rate rises but foresaw “another couple in the next 18 months or two years. I don’t think that’s unreasonable as a rule of thumb”.
In March McCafferty was one of the first MPC members to vote for the Bank to raise rates from the emergency level of 0.5% reached during the depths of the financial crisis. Earlier this month the committee unanimously backed a tightening of policy.
“The labour market has shown significant signs of tightening in recent months,” McCafferty said. “Surveys and other measures are pointing to labour shortages as a constraint on output growth.”
The outgoing MPC member said that previously skill shortages were restricted to skilled occupations, but had now spread to unskilled sectors as well.
Despite the steady fall in unemployment as the economy has recovered from its worst recession since the second world war, wage inflation has been modest and earnings are currently growing at an annual rate of 2.5%.
The Bank is forecasting earnings growth to accelerate to 3.25% in 2019, but McCafferty said that if labour demand continued rising at its current pace there was a chance that wage inflation would go higher. “It might creep up towards 4%-ish,” he said.
Some City commentators have speculated that one reason behind the Bank’s decision to raise rates to 0.75% was the MPC’s desire to provide itself with more firepower in the event that the UK leaves the EU without a deal next spring.
McCafferty said the MPC had acted when it felt it needed to and that delay increased the chances of a more aggressive tightening later. “I don’t think we have left it too late,” he said. “But once you think a rate increase is appropriate you shouldn’t dally with the first one.”
Latest News
Top news around the world
Coronavirus Disease

Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus.

Most people infected with the COVID-19 virus will experience mild to moderate respiratory illness and recover without requiring special treatment. Older people, and those with underlying medical problems like cardiovascular disease, diabetes, chronic respiratory disease, and cancer are more likely to develop serious illness.

Around the World

Celebrity News

> Latest News in Media

Watch It
Julia Fox defends viral ‘Uncut Gems’ interview moment: ‘I was stoned’ | Page Six Celebrity News
February 17, 2022
4m-p0_-ePd8
Alexia Echevarria pushed ‘RHOM’ producers to show more of son Frankie’s recovery | Page Six
February 17, 2022
E-wTaN9NfkI
Pete Davidson rejoins Instagram amid Kanye West drama | Page Six Celebrity News
February 17, 2022
SsC3dmsI6t4
Aaron Rodgers And Shailene Woodley Reportedly Break Up | TMZ LIVE
February 17, 2022
FoErdRE8Qe4
Chet Hanks Done Talking About Famous Parents, Becoming Personal Trainer | TMZ
February 16, 2022
5_UrULOkQ6o
Woman Stabbed at Foot Locker During Nike Shoe Release
February 16, 2022
TfuXMs1JdVg
Steph's Freaky Side, "Summer House" & "Love During Lockup"
February 17, 2022
9W_raO0zlA8
Tay or Nay, Offset's Sushi Anxiety & Nick on Monogamy
February 17, 2022
PauYHpJRA6o
Kim Kardashian & North West TWINNING in Matching Pajamas | E! News
February 17, 2022
b-_Oib6R108
Adam McKay - Hollywood Walk of Fame Ceremony
February 17, 2022
tYtzsHoOZzo
Tom Holland, Mark Wahlberg, and the Cast of 'Uncharted' Talk Most Challenging Stunts
February 15, 2022
d3ksX-SKi8c
Ryan Reynolds and Walker Scobell on ‘The Adam Project’, ‘Deadpool’, and Possible ‘Star Wars’ Role
February 16, 2022
5TxJsbJr9Dk
TV Schedule
Late Night Show
Watch the latest shows of U.S. top comedians

Sports

Latest sport results, news, videos, interviews and comments
Latest Events
04
May
CONCACAF CHAMPIONS LEAGUE: Playoffs
Seattle Sounders - Pumas
04
May
USA: Major League Soccer
FC Cincinnati - Toronto FC
03
May
ENGLAND: Championship
Bournemouth - Nottingham Forest
02
May
ENGLAND: Premier League
Manchester United - Brentford
02
May
ENGLAND: Championship
Fulham - Luton
02
May
SPAIN: La Liga
Getafe - Real Betis
02
May
GERMANY: Bundesliga
Bayer Leverkusen - Eintracht Frankfurt
02
May
GERMANY: Bundesliga
Borussia Monchengladbach - RB Leipzig
02
May
ITALY: Serie A
Atalanta - Salernitana
01
May
ENGLAND: Premier League
Tottenham Hotspur - Leicester City
01
May
SPAIN: La Liga
Barcelona - Mallorca
01
May
ITALY: Serie A
Roma - Bologna
01
May
ENGLAND: Premier League
West Ham United - Arsenal
01
May
ENGLAND: Premier League
Everton - Chelsea
01
May
ITALY: Serie A
Udinese - Inter Milan
01
May
ITALY: Serie A
AC Milan - Fiorentina
01
May
ITALY: Serie A
Juventus - Venezia
01
May
SPAIN: La Liga
Rayo Vallecano - Real Sociedad
30
Apr
GERMANY: Bundesliga
Mainz - Bayern Munich
30
Apr
GERMANY: Bundesliga
Borussia Dortmund - Bochum
30
Apr
ENGLAND: Premier League
Newcastle United - Liverpool
30
Apr
SPAIN: La Liga
Athletic Bilbao - Atletico Madrid
30
Apr
ENGLAND: Premier League
Leeds - Manchester City
30
Apr
SPAIN: La Liga
Real Madrid - Espanyol
30
Apr
ITALY: Serie A
Napoli - Sassuolo
28
Apr
ENGLAND: Premier League
Manchester United - Chelsea
27
Apr
CHAMPIONS LEAGUE: Semifinal
Liverpool - Villarreal
27
Apr
ITALY: Serie A
Bologna - Inter Milan
26
Apr
CHAMPIONS LEAGUE: Semifinal
Manchester City - Real Madrid
25
Apr
ITALY: Serie A
Sassuolo - Juventus
24
Apr
SPAIN: La Liga
Barcelona - Rayo Vallecano
24
Apr
ITALY: Serie A
Lazio - AC Milan
24
Apr
ENGLAND: Premier League
Liverpool - Everton
24
Apr
ENGLAND: Premier League
Chelsea - West Ham United
24
Apr
ITALY: Serie A
Empoli - Napoli
23
Apr
ENGLAND: Premier League
Brentford - Tottenham Hotspur
Find us on Instagram
at @feedimo to stay up to date with the latest.
Featured Video You Might Like
zWJ3MxW_HWA L1eLanNeZKg i1XRgbyUtOo -g9Qziqbif8 0vmRhiLHE2U JFCZUoa6MYE UfN5PCF5EUo 2PV55f3-UAg W3y9zuI_F64 -7qCxIccihU pQ9gcOoH9R8 g5MRDEXRk4k
Copyright © 2020 Feedimo. All Rights Reserved.