Mortgage rates could rise - BoE

Mortgage rates in the UK could increase in the short-term if Britain votes to leave the European Union, according to the Bank of England (BoE) governor Mark Carney.

At a parliamentary select committee yesterday, the BoE was accused of political bias, having previously expressed a preference for the UK to remain in the European Union. But Carney defended his organisation’s rhetoric on Brexit, insisting that there is a very good chance that mortgage rates could increase if Britain opts to exit the EU.

He spoke about the possibility that interest rate could rise in the event of Brexit, which in turn would push up mortgage borrowing rates, saying that he and the chancellor George Osborne have discussed potential developments on risk premium on sterling assets.

Carney (pictured) commented: “For both of our direct responsibilities that risk is relevant. I would characterise it thus - the combination of the effects on demand and supply in the exchange rate ... could result in either a lower or a higher bank rate.”

However, a BoE policymaker warned last week that if Britain does vote to remain in the EU, underlying weakness in the economy could mean that more support is required from the Bank.

Jan Vlieghe, one of the nine policymakers who vote on interest rates, has previously floated the idea of them being cut below zero. He raised the prospect of rates coming down further from their record low of 0.5%, when he said the economy could require “additional monetary stimulus” if it does not rebound after a remain vote in the EU referendum on 23 June.

In a speech at the London Business School, Vlieghe (below) said: “The challenge for the committee is that we do not know how much of the slowing in growth is due to the referendum, an effect that should be short lived, and how much of it reflects a more fundamental loss of underlying momentum, which might be more persistent.”

Earlier this month, Oxford Economics said that an interest rate hike this year is ‘very unlikely’.

Its latest assessment of inflation in the UK concluded that although the historically low rates of inflation witnessed over the past 18 months are unlikely to persist, its ‘bottom up’ forecast suggests that inflation is likely to remain short of the 2% target over the next two years.

‘This means that a 2016 rate hike is very unlikely, although a move in mid-2017 still looks plausible,’ the firm said.