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BBR could remain sub-1% for 5 years
The latest Bank base rate hold has led some economists to predict that interest rates could stay below % for five years.
The Bank of England’s Monetary Policy Committee (MPC) kept interest rates at 0.5% for the
ninth consecutive month last week. The hold means the Bank base rate is unchanged since March, the longest period of inactivity since August 2006.
No further changes were made to the quantitative easing programme following a £25bn injection in November.
Roger Bootle, managing director of Capital Economics, said homeowners and prospective
buyers should expect low interest rates to stick around.
He added: “A prolonged period of low interest rates will be required to allow the economy to
withstand the looming fiscal austerity. My money is on the Bank base rate staying at 1% or lower for five years.”
Bootle said the Bank of England should consider cutting the rate all the way to zero. Other economists also expect little movement in interest rates for the foreseeable future.
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Ian McCafferty, chief economic adviser at the Confederation of British Industry, said: “It is not a
surprise that the Bank has taken no new action, as the latest round of quantitative easing announced last month is due to continue until February.
Economic growth will be anaemic at best across 2010, so the Bank will have to continue looking to monetary policy levers for some time yet and interest rates are likely to remain low for some time.”
Elsewhere, Abbey said the latest hold means the MPC has run out of space to make further cuts and the Association of Mortgage Intermediaries called for more government support to encourage greater liquidity in the mortgage market before any future
increase in the base rate.
Ray Boulger, senior technical manager of John Charcol, said: “As long as the Consumer Price Index is expected by the MPC to fall back below the 2% target rate within its two-year time horizon, there will be little pressure on the MPC to increase the base rate.”