Mark Carney
Mark Carney has warned that low an predictable interest rates can fuel credit bubblesReuters

The Bank of England governor has hinted at a surprise hike in interest rates just days after a speech in which he said lifting the base rate may happen sooner than markets currently expect.

Since 2009 the central bank's benchmark rate has sat at 0.5% in an effort to keep credit artificially cheap and banks lending while the economy was depressed in the aftermath of the financial crisis.

But now the UK economy is recovering faster than expected, the Bank of England's policymakers are looking at increasing the base rate again, albeit gradually, to fend off any credit bubbles.

"We are fully aware that the environment of low and predictable interest rates necessary to nurture the recovery could encourage excessive risk taking in financial markets and by households," said Mark Carney in the Bank of England's annual report.

"In November, the Bank's financial policy committee announced initiatives to reduce the stimulus being provided by the authorities to the housing market.

"We will not hesitate to take further proportionate and graduated action as warranted."

He had said in his annual Mansion House speech to a City of London audience that raising the base rate might happen more quickly than markets think it will. Most analysts had been expecting a base rate hike at some point in mid-2015.

David Miles, one of the nine members on the central bank's monetary policy committee (MPC), said he will probably vote for a base rate hike before his term ends in May 2015.