Rates have been held at 0.5%, a historic low, since March 2009 but NIESR projects they will “increase gradually” from early next year despite a slowdown in the UK economy.
After an initial rise, it predicts rates will increase by 0.5% annually, reaching 2% by the end of 2018.
UK economic growth slowed in the third quarter but NIESR predicts this softening in growth will be “temporary”. It calculates the economy will expand by 2.4% overall this year, and 2.3% next year.
In other forecasts, NIESR said the rate of Consumer Price Inflation will rise from close to zero in 2015 to 1.1% in 2016 and that from the middle of 2017 onwards inflation will be close to the Bank of England’s target of 2%.
Unemployment will remain at around 5.25% through the remainder of this year and in 2016.
Bank of England governor Mark Carney is expected to discuss the interest rate outlook tomorrow when the latest inflation report is published.
