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LONDON, June 27 British interest rates are
unlikely to return to levels seen as normal before the financial
crisis because the economy is still vulnerable, Bank of England
Governor Mark Carney said in an interview broadcast on Friday.
Speaking a day after the British central bank imposed its
first limits on how much people can borrow to buy a home, Carney
said interest rates were unlikely to return to their "old
normal" pre-crisis average of around 5 percent.
Market expectations that rates will be around 2.5 percent in
three years as "not inconsistent" with the economy returning to
form, Carney told BBC radio's Today programme.
"The old normal (interest rate) is not likely to be the new
normal," he said.
"Things have changed. Households have a lot of debt, the
government has been consolidating its financial position, Europe
is weak, the pound is strong, and the financial system has been
Carney also pointed to the Bank's projections for interest
rates, published in May, that show interest rates nearing 2.5
percent in 2017.
"But I'm not giving you a guarantee on that, I'm giving you
direction," he said.
The Bank of England has kept interest rates at a record low
0.5 percent for more than five years.
Carney repeated his message that the time will come to raise
interest rates, and that the BoE intends to hike them in a
"limited and gradual" fashion.
Economists polled by Reuters expect the first interest rate
hike to come in the first quarter of 2015, while financial
markets currently price it in at around the turn of the year.
On Thursday the BoE moved to stem increasing levels of debt
and rapidly rising house prices by announcing curbs on mortgage
(Reporting by Andy Bruce; Editing by Catherine Evans)