Savers ‘could suffer low rates for three years’

INTEREST rates could stay at record lows until the next decade, analysts warn – meaning savers should brace themselves for three more years of misery.

The Bank of England cut rates to 0.25pc in August following the vote to leave the European Union – slashing the returns prudent savers get on their nest eggs.

But in a blow to families who have already endured nearly a decade of dismal returns, experts now believe rates will not be raised before 2020.

Howard Archer, chief European and UK economist at global consultants IHS Markit, said: ‘It looks more likely than not that the Bank of England will keep interest rates unchanged, not only through 2017 but maybe out to 2020.’

Projections on financial markets – monitored by the Bank of England – suggest interest rates will rise shortly before the IHS Markit forecast.

But they still do not see rates reaching 0.5pc before mid-2019.

A prolonged spell of low rates would be welcomed by borrowers, who have seen the cost of mortgages and other loans tumble over the past decade.

But it would spell misery for savers who have lost out since the financial crisis.

Rates could rise earlier, however, if the economy performs better than expected or inflation rises sharply. The Bank has already been forced to abandon plans to cut rates again – possibly to as low as 0.1pc – due to the strength of the economy in the past six months.

Governor Mark Carney expected a sharp slowdown – and even warned of a recession – following the Brexit vote.

In a doom-laden Brexit dossier published while George Osborne was Chancellor, the Treasury warned the public that the economy could shrink by 1pc in the three months after the referendum if a majority of Britons voted to leave the EU. But the economy actually grew by 0.6pc between July and September – as it did in the three months before the referendum – showing there was no slowdown at all.

Britain was the fastest growing major economy in the developed world in 2016 – outpacing its G7 rivals of the US, Canada, Japan, Germany, France and Italy.

IHS Markit is forecasting a slowdown this year, with the pace of growth expected to drop from 2pc to 1.4pc. In the immediate aftermath of the Brexit vote, economists were forecasting growth of just 0.5pc next year.

But the outlook now looks far brighter, with leading proponents of Project Fear – including the Bank of England, Treasury and International Monetary Fund – all conceding they were too gloomy about the UK’s prospects.

Archer said the fall in the pound since the Brexit vote ‘should support UK exports’, but added: ‘Exports could be hampered by political uncertainties weighing down on eurozone growth.’