No interest rate rise until 2020
Misery for savers as global uncertainty means...
INTEREST rates in Britain will not rise until the middle of 2020, according to investors.
Rates have been frozen at an all-time low of 0.5pc since March 2009 when the UK was in the depths of recession.
But projections on financial markets now suggest rates will not reach 0.75pc until May 2020 – resulting in more than a decade of record low borrowing costs.
Experts warn that the Bank of England could even cut rates towards zero in the next 12 months to inject fresh life into the economy. That would spell misery for Britain’s army of savers who have lost out since the financial crisis, but it would be welcomed by borrowers who have seen the cost of mortgages and other loans tumble.
John Wraith, a strategist at investment bank UBS, said ‘it would become highly likely that at some point the Bank of England would have to respond’ by cutting rates if the recovery in the UK economy runs out of steam.
Market expectations – which are closely monitored by the Bank and reflect when investors around the world think UK rates will move – now suggest they will not hit 0.75pc for an incredible 47 months.
Growth slowed at the start of this year amid uncertainty over the global outlook – including in the United States and China – as well as over Britain’s membership of the European Union.
The Bank’s Monetary Policy Committee, which sets interest rates, is widely expected to leave them unchanged when it meets this week. But the central bank, led by governor Mark Carney, looks certain to infuriate Eurosceptics by issuing fresh warnings over the risks of quitting the Brussels club when it announces its decision on rates on Thursday.
The pro-EU International Monetary Fund is also braced for heavy criticism when it publishes its latest health check on the UK economy on the same day.
David Cameron and George Osborne are likely to seize on the warnings by the Bank and the IMF as they try to persuade voters to stick with Brussels.
Carney last month warned that Brexit could trigger a ‘technical recession’ in the UK and cause the pound to fall ‘sharply’. IMF managing director Christine Lagarde last month said the economic impact of Brexit ranged from ‘pretty bad’ to ‘very, very bad’.
Employment minister and Brexit campaigner Priti Patel said the strategy of the ‘Remain’ camp involves ‘terrifying people’ into voting to stay in the EU, while former Tory Chancellor Lord Lamont described the IMF’s intervention as ‘inappropriate’. He said: ‘Normally the IMF will not pronounce on the economy of a country during an election, and it should have observed this rule with regards to the UK and this referendum.’
Despite doom-laden warnings of a collapse in the pound and the stock market, sterling has risen 2.8pc against the US dollar and 2.6pc against the euro since its lows earlier this year. The FTSE 100 has risen more than 10pc in the past four months.
Ukip leader Nigel Farage dismissed the ‘ludicrous scare stories’ of the ‘Remain’ camp. ‘Since Brexit became a possibility, sterling is up,’ he said. ‘Even if sterling were to fall a few percentage points after a Brexit, so what? We have a floating currency and it would be good for exports.’
A report by Lloyds Bank shows the East Midlands and Yorkshire and Humber are now the fastest-growing regions followed by the East and the North West. At the other end of the scale, output is now falling in the North East and Scotland.