Mortgage News
Rates to remain at 0.5% until 2015 – Capital Economics
The Bank of England will keep base rate at its record low of 0.5% for another three years, according to Capital Economics.
The firm has forecasted that the BoE will hold rates until 2015 due to weak bank lending and sluggish economic recovery.
The estimate comes in the same week the BoE once again opted to hold interest rates, so marking three years since base rate was lowered to 0.5%.
Vicky Redwood, the consultancy’s chief UK economist, pointed out that markets are not pricing in a rate rise until at least the end of next year.
“We would not be surprised if interest rates stayed at their current level for another three years and even in sticking at these low levels it may not be enough to generate a strong recovery, especially with higher bank funding costs prompting a rise in some mortgage rates,” said Redwood.
Capital Economics added it anticipates a further bout of asset purchases from the BoE later this year, as growth remains subdued.
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The quantitative easing programme was increased by £50bn in February, following a £75bn boost in October.
Redwood said that, if the economic recovery is on a sustainable footing, the BoE will have no incentive to increase the programme, but added: “We expect the economic recovery to fizzle out again, resulting in more asset purchases later this year.
“The consensus is wrong in thinking the MPC is done with QE, as the recent falls in the CIPS/Markit business surveys could be a tentative sign the recovery is already losing momentum.”