Interest Rate ‘To Stay Put Well Into 2011′
4:29pm UK, Wednesday August 04, 2010
A deeply uncertain economic outlook means record low interest rates are here to stay – until well into 2011 at least, experts say.
Experts state Bank of England’s door remains firmly closed to rate rises for now
All members of the 11-strong Sky News Money Panel predict the Bank of England will keep the cost of borrowing at 0.5% when it announces its August decision at noon on Thursday.
And of those prominent economists, entrepreneurs and business leaders, two envisage the rate remaining at that level at the end of next year.
Tax expert George Bull, of accountancy Baker Tilly, stated it was easier to identify a circumstance for raising the interest rate than to foresee a specific time for doing so.
“When the economy is growing so quickly that the need to curtail inflation is greater than the risk of a recession is when the MPC will start to raise the base rate.
“With the majority of Government spending cuts yet to come, however, I do not see that being anytime soon and, barring another shock, anticipate the rate to be around 0.5% at the end of 2011.”
Curtis: No rise until mid-2011
Standard Chartered chief economist Gerard Lyons shared the view – but with an added warning: “There is always the danger the Bank of England will make a bad judgement call and hike too early.”
HSBC head of global research Bronwyn Curtis, National Australia Bank head of research Nick Parsons and David Frost, the director general of the British Chambers of Commerce, did not anticipate a rate rise before May next year.
All felt the danger of jeopardising an uncertain recovery should persuade the Bank’s Monetary Policy Committee not to move too fast, with Mr Frost warning: “Countering the threats to the recovery must be given the highest priority at the present time.”
Mr Parsons stated he did not anticipate a repeat of the shock 1.1% jump in GDP the UK saw in the second quarter – and that the central bank had a vital role to play in helping Britain cope when growth slows.
“We anticipate a close, friendly and on-going dialogue between the Bank of England and the Treasury which should mean that interest rates will not be increased until after the contents of the next Budget have been made public.
“Practically speaking, this means we do not anticipate an increase until May next year as loose monetary policy will be needed to offset tight fiscal policy and support economic recovery.”
Caan: Rate could hit 1.75% in 2011
Of the Money Panel members, only entrepreneur James Caan and property investor Gary McCausland forecast significant rate rises in 2011.
Mr Caan thought they could push as high as 1.75%, Mr McCausland felt 2% could be a possibility.
But their fellow experts indicated a rate far closer to the current low.
Tax specialist Angela Beech stated economic stimulus was still needed by businesses and consumers alike, with the former finding bank lending scarce and the latter lacking the incentive to save and the courage to spend in a low-rate, uncertain environment.
“With the cuts in public spending and the increases in both direct and indirect taxation, I see tiny reason for base rate to move for the remainder of this year, and certainly not well into next year.”
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