The Bank of England is likely to keep interest rates on hold until the middle of next year rather than raising them sooner, following a gloomier outlook for the global economy, according to the economic forecaster CEBR.
The Centre for Economics and Business Research now believes a rise in May or August 2016 is more likely than one in February, its previous prediction. Signs of a global economic slowdown have been growing in recent weeks, especially in the world’s second-largest economy China and emerging markets. This is likely to stay the Bank’s hand despite reasonable growth rates in the UK, with the CEBR warning that the UK’s performance may not be sustainable if economies elsewhere continue to struggle.
It forecasts the UK economy will grow by 2.5% this year, slowing to 2% in 2016 and then averaging 1.7% over the years 2017-2020. In contrast, the Office for Budget Responsibility expects growth to remain above 2% over this period.
The CEBR said if the global economy continued to falter, then these forecasts were at risk, with exports and business investment both likely to be hit.
Scott Corfe, head of macroeconomics at CEBR, said: “It is clear that the global economy has deteriorated significantly over the past few months and there are significant downside risks to the UK’s own prospects.
“With inflation expected to remain below the Bank of England’s central target of 2% until 2017, we think the Bank rate will remain on hold until the middle of next year. A rate rise in May or August seems most likely, to coincide with the inflation reports released in these months.
“Even when the Bank of England does raise rates, we expect the pace of rate rises to be very gradual. Even by 2020, we expect the bank rate to stand at just 2% – what CEBR believes is the ‘new normal’ for interest rates.”
Earlier this month, the Bank of England governor, Mark Carney, told a Treasury select committee that a decision on interest rates would “come into sharper relief around the turn of the year.” He hinted that rates could gradually begin to rise in the second quarter of 2016.
But one member of the Bank’s monetary policy committee, Andy Haldane, seemed to take a different view, even suggesting in a speech that the next move in interest rates could be downwards.
This article was written by Nick Fletcher, for theguardian.com on Monday 28th September 2015 00.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010