The Bank of England will wait until after the general election to raise interest rates as the threat of a resurgent eurozone crisis hangs over the UK economy, according to a leading thinktank.
The National Institute of Economic and Social Research (NIESR) pushed back its expectation of the first rate rise to June 2015, a month after the nation votes, but said it could be even later. Previously it was expecting the first hike in February.
NIESR said rates, currently at an all-time low of 0.5%, would reach 1% by the end of 2015, rising gradually to 2.75% by the end of 2019. The Bank is expected to look through low annual inflation, currently at 1.2%.
Growth in the UK is expected to peak this year at 3% – unchanged from NIESR’s August forecast – before slowing to 2.5% in 2015, and 2% in 2016 as the slowest recovery in a century continues. Growth has become better balanced, it said, with business investment providing a bigger contribution.
A flagging eurozone economy and a return to the depths of the region’s crisis is the single biggest threat to the forecasts, NIESR warned.
Simon Kirby, principal research fellow at the thinktank, said: “Continued stagnation or even worse in the euro area compared to our baseline projection would knock the growth forecast quite significantly. Certainly a resurgence of 2010-2012 could really have a negative impact on the UK economy.”
via The Guardian