Gerard Lyons, chief economic advisor to London Mayor Boris Johnson, warns that rate rises could be sooner than people think

UK interest rates will start to rise this year and peak at 5 per cent, far higher than the Bank of England expects, according to Gerard Lyons, Chief Economic Advisor to London Mayor Boris Johnson.

Speaking after last night’s warning from Mark Carney, in which the Bank of England Governor indicated rates could go up “sooner than the markets expect”, Mr. Lyons’ words will further fuel speculation the first rate increase since July 2007 will happen later this year.

Mr Lyons, though, goes further than Mr. Carney, arguing that UK rates could peak “at a very high level” - a view at odds with the Bank Governor, who has consistently argued borrowing costs will rise by less than in previous cycles.

“Mark Carney and the Bank of England are indicating rates will peak at 3 per cent,” Mr Lyons told The Telegraph. “I think that rates, eventually, in 4 or 5 years' time will have to peak at over 5 per cent”.

Speaking in London at the annual Mansion House dinner last night, Mr. Carney acknowledged there was “already great speculation about the exact timing of the first rate hike” from the record low of 0.5 per cent, adding that the decision was “becoming more balanced”.

Emphasising there was “no pre-set course” on when to raise rates, the Governor stressed that the timing of the first rise was less important than the speed at which subsequent increases were made. “We expect that eventual increases in Bank rate will be gradual and limited,” he said.

Prior to last night, financial markets were pricing in the first rate rise by June 2015. Since Mr. Carney spoke, sentiment has shifted, with the pound strengthening to a near five-year high against the dollar.

http://www.telegraph.co.uk/finance/economics/10897700/UK-interest-rates-to-rise-this-year-and-could-peak-at-5pc.html