Interest rates to remain low for next 20 years, says MPC official

THE UK looks set to face another 20 years of rock-bottom interest rates, Bank of England policymaker Ian Mccafferty has said, a week after the central bank took its first steps in returning rates back to pre-financial crisis levels.

Speaking to The Guardian, Mr Mccafferty said there was a “20-year horizon under which there will be factors keeping it low”.

“It is too much to say never, that we won’t ever go back,” he added, referring to the 5pc average of interest rates in the 10 years leading up to the financial crisis.

The Bank of England last week lifted rates to 0.75pc – the first time rates have gone above 0.5pc since March 2009 when they were cut to combat the recession.

The nine-member Monetary Policy Committee (MPC) voted unanimously in favour of the rise to put the brakes on inflation, which is running ahead of target. Mr Mccafferty’s comments, made in the interview ahead of his departure from the MPC at the end of the month, are in line with earlier forecasts from economists, with Berenberg Bank saying earlier this year that the extra pressure from savings could mean another decade of interest rates being held below 2pc.

Berenberg’s Nick Anderson had said: “Interest rates will be lower for (a lot) longer, potentially for at least another decade.

“If this sounds unrealistic, history is clear. Across developed economies between the early Thirties and the mid Fifties, interest rates remained at very low levels. In the case of the US, Canada, the UK and the Netherlands short rates were close to zero throughout this two decade period.”

In the interview yesterday, Mr Mccafferty reiterated earlier comments that the UK should expect a “couple more small rate rises over the next two or three years”.

Speaking to LBC earlier this week, he said: “We would like to get to a point where interest rates could be materially cut if the economy weakens, as well as pushing them up as the economy has hit full employment.

“What we are trying to do is to make sure the economy is stable, keep the economy growing at a pace which delivers a good employment and unemployment outlook without allowing inflation to rise.”

Mr Mccafferty has served on the MPC for six years, and is thought by many to be one of the most “hawkish”officials.

He was one of the first on the MPC to vote to increase rates above 0.5pc back in March.