Leading economic forecaster, the Ernst and Young ITEM Club, has said that the Bank of England is likely to keep the base interest at its record low of 0.5 per cent until 2014.
This comes as good news for mortgage holders and seekers in the next four years, as mortgage lenders should be able to keep mortgage rates low as their borrowing costs are kept down. The ITEM Club forecast that interest rates would have to be kept low to offset the spending cuts planned by the new Conservative/Liberal Democrat coalition government.
Professor Peter Spencer of the ITEM Club said that a base rate of half a per cent would begin to look like the normal level. Another group, the Office for Budget Responsibility (OBR) has previously said that it expected rates to begin to rise again in 2011. The record low of 0.5 per cent for the Bank of England base rate was reached in March 2009, and has been kept at that level ever since.
Professor Spencer said that the new government’s plans for cuts to the current deficit were certainly ambitious. “On the assumption that the government is able to implement the overall reduction of ?40 billion set out in the Budget, we expect that UK growth will struggle to reach 1 per cent this year but will gradually speed up in the following years to give the UK a high-quality recovery based on trade and investment,” the Professor told BBC News.
Another forecast by the ITEM Club was that the Consumer Price Index (CPI) would stay above the Bank’s target of 2 per cent for another 18 months, but would then fall well below that mark as energy prices and the effects of the rise in VAT wore off. “To prevent CPI inflation moving below 1 per cent it will be necessary keep the Bank base rate low at 0.5 per cent for much longer than the OBR and the markets have anticipated,” the ITEM Club said.
