Mark Carney: Chinese Problems Unlikely To Prevent UK Interest Rate Rise

Mark Carney: Chinese Problems Unlikely To Prevent UK Interest Rate Rise

China's economic problems are "unlikely" to derail plans to raise interest rates in the UK, Bank of England Governor Mark Carney has claimed.

The Chinese slowdown and rattled investor confidence this week prompted expectations that rate increases might be taken off the agenda in the short term in both the US and UK, where the cost of borrowing has remained at 0.5% for more than six years.

But speaking at an annual get-together of central bank bosses in Jackson Hole, Wyoming, Mr Carney said that the current concerns over China were outweighed by the "ongoing domestic strength" of the UK market, credible policy and an "increasingly robust financial system".

"The direct exposure of the UK economy to China is relatively modest," he told delegates.

"Developments in China are unlikely to change the process of rate increases."

In July, the Governor gave strong hints that interest rates would rise by early 2016, claiming that they would probably go up slowly and reach a level "about half as high as historical averages" of 4.5%.

He warned then that shocks to the economy and shifts in the exchange rate could affect the pace and size of any increases.

The move would provide long-awaited relief to savers who have seen their returns shrink in the wake of the financial crisis.

However, it would also increase pressure on borrowers, who would have to pay more for their mortgages and credit card bills, and could hit the housing market.

Doubts over Mr Carney's plans were raised when some £74 billion was wiped off the value of the UK's FTSE 100 companies in the two days following this week's Black Monday crash.

However, in the second half of the week London's top-flight share index bounced back and saw its biggest rise in nearly four years.

Mr Carney told the Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City: "Consumer confidence is at its highest level in over a decade and retail sales have been growing at well above past average rates.

"Firms' investment intentions are robust. And inflation expectations remain consistent with our 2% target."

The Canadian's message came after a high-ranking official from the United States' Federal Reserve on Friday kept the option of an interest rate rise in September on the table.

Stanley Fischer, the vice-chairman of the Fed's Board of Governors, said it was too early to say whether recent turbulence had affected the argument for a move next month, adding that no decision had yet been made.

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