Interest rates ‘set to stay at all-time low until 2013’

Monday, 14 May 2012 08:37

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The Governor of the Bank of England Sir Mervyn King is expected to hint in Wednesday’s quarterly inflation report that interest rates will stay put until the end of next year at the earliest.

Economists are predicting that the Bank will revise down its forecast for the economy and warn of further inflation hikes.

Dr Howard Archer, chief UK economist at IHS Global Insight, said: “It is odds-on that the new forecasts contained in the report will be the all too familiar and dispiriting mix of reduced growth but higher inflation expectations.

“We expect it to indicate that interest rates are unlikely to rise from the current level of 0.5 per cent until at least late 2013, and very possibly not until 2014.”

Last month, figures from the Office for National Statistics revealed that the UK had slipped back into recession following two consecutive quarters of negative growth.

At the same time, inflation is now running at 3.5 per cent, almost double the Bank’s two per cent target.

But the Bank is concerned that increasing interest rates to combat rising inflation could affect economic growth, which is why economists are forecasting that the base rate will stay where it is – at 0.5 per cent – for the time being.

Last week, the monetary policy committee kept the base rate unchanged and also moved to hold quantitative easing (QE) at £325 billion.

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