Mark Carney, Governor of the Bank of England said they were "focussed" on "raising interest rates" and the correct time to review monetary policy, he told the Mail on Sunday.
Low inflation, expectation that the US Federal Reserve will not raise rates until next year and China's economic slowdown mean markets do not expect the Bank of England to lift rates from a record low of 0.5% until April 2017.
The base rate is only expected to rise to 1.5pc by 2020.
Mr Carney urged UK households to prepare for tighter monetary policy now. ‘If we think there is a prospect, a possibility – that’s a possibility not a certainty – of rate rises, then that is far, far better to let the British people know so they can prepare."
However, he also suggested that rates could remain low for longer. "If events mean that does not happen and rate rises are not appropriate, then we will do the right thing and we will not adjust rates," he said.
Mr Carney emphasised that any increases would be "modest" and "gentle", reinforcing the Bank's expectation that rises will be gradual. The Governor also warned that hundreds of thousands of mortgage holders were vulnerable to increases in interest rates. Mark Carney said 4% of all mortgagors - or around 280,000 homeowners - could struggle to pay back their debts if the Bank raised rates.
The Bank's annual survey of around 6,000 households, revealed;
- a "substantial proportion" of UK households were still "carrying a lot of debt".
- around 480,000 borrowers could be at risk of defaulting on their mortgage if their payments increased by 2 percentage points, even if incomes rose by 10%
- around 4% of UK borrowers spend more than 40% (aka. vulnerable borrowers) of their gross income on mortgage repayments – this could increase by 50% to around 6%
Last summer, The Bank took steps to ensure lenders “stress test” borrowers’ ability to repay their loans if the mortgage rate were 3% higher than the representative rate at the time the loan was approved.
Its next household survey is due to be published in December 2015.
Forward-thinking borrowers are already taking action to shelter themselves from an increase in the base rate. Bank data shows that 79% of new home loans taken out in the second quarter of this year were fixed rate mortgages, up from 38% at the beginning of 2008.