Interest rates set to stay low

Interest rates set to stay low for at least another two years
Interest rates are set to stay on hold for at least another two years as the economy continues to show signs of slowing, experts believe.

If the economic outlook gets any worse, the next move could even be a cut from 0.25pc to 0.1pc. The latest figures for both consumer spending and business investment, published last week, were very weak.

Rates have not been raised for a decade but in a series of comments earlier this summer, the Bank of England hinted that conditions were looking up. However, the latest official data has scotched those hopes, and analysts are increasingly convinced that the chances of policy tightening are receding.
“Our forecast is for rates to remain unchanged as far as the eye can see, which for us means the end of 2018,” Sam Hill, economist at RBC Capital Markets, said.

He had thought that the Monetary Policy Committee might cut rates until comments from policymakers including Andy Haldane, the Bank’s chief economist, indicated that the base rate could be pushed up.

But the weakness of consumer spending and the fall in the savings ratio now means Mr Hill is once again considering the prospect of a rate cut.
He said: “The challenge we see with the Bank’s current outlook is that they’re relying on the idea other parts of the economy will make up for weakness in consumer spending”

The outlook also depends on smooth Brexit negotiations, an assumption the Bank has built into its models.

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