Interest rates could begin to rise from their historic lows at the turn of this year, the Bank of England Governor predicts.

Mark Carney says he expects the bank rate to rise over the next three years from its current all-time low of 0.5%.

He adds that rates will likely rise slowly, reaching a level that is "about half as high as historical averages" of 5%, but that the timing and size of interest rate increases could be impacted by "shocks in the economy" and "shifts in the exchange rate".

Carney's prediction builds on comments he made to the Treasury Select Committee earlier this week where he indicated that the UK is "moving closer" to a rise in interest rates after more than six years at historic lows.

In a speech at Lincoln Cathedral last night, Carney said: "Short-term interest rates have averaged around 4.5% since around the Bank's inception three centuries ago, the same average as during the pre-crisis period when inflation was at target...

"It would not seem unreasonable to me to expect that, once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.

"In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year."

Guy Anker, managing editor of MoneySavingExpert, says: "Interest rates haven't changed at all since March 2009, and in that time, very prominent people including Carney himself have made predictions that haven't actually come true.

"However, it is Mark Carney and we should take him seriously, because as people go, you aren't going to get much closer to the decision making process than him."

What are interest rates and who sets them?

The Bank of England is responsible for setting interest rates, through its Monetary Policy Committee, which is chaired by the Bank of England Governor. The committee must meet an inflation target, set by the Chancellor, and uses interest rates to do this.

The rate it sets – the bank rate – is the rate it uses to lend to other banks. This is used as the base rate which helps banks determine how much to charge borrowers.

See's Interest Rates guide for more on this.

What will be the impact of the rise on savers?

Rising interest rates should mean higher saving rates. Pensioners and those on fixed incomes are likely to benefit as their savings gain interest.

Anker says: "In the simplest form, savers will win and borrowers will lose. The problem is Carney has said very clearly that whenever interest rates go up they are likely to go up very gradually. That is not going to have a major significant impact on the UK population."

He adds: "This also all assumes that the banks and building societies pass it on. They don't always pass on the full effects of a base rate rise."

See's Top Savings Accounts guide to get the most for your money.

'Interest rates could rise at turn of the year'
Interest rates could begin to rise from their historic lows at the turn of this year

What will be the impact of the rise on those with mortgages and loans?

The picture is less positive for borrowers, who could see higher repayments for mortgages or other loans.

Anker says: "It's probably going to mean an increase in costs, but it's unlikely to mean a dire increase in costs.

"Again we are reliant on banks and building societies passing it on, but the likelihood is they will pass the mortgage rate on a lot quicker than they will pass the savings rate on."

He stresses that it is important customers seek out the best deal in light of Carney's comments, saying: "I don't think this should change people's behaviour, but it is nevertheless a trigger to review your mortgage."

See's Mortgage Section for full help for first-time buyers, those looking to remortgage, buy-to-let help and the best buys.