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Interest rates unlikely to rise before Q1 2015

POSTED: 1st November 2014
IN: Personal Guides
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UK interest rates are unlikely to increase before the first quarter of 2015 at the earliest, recent reports indicate.

Interest rates will stay low for the time being, reports suggest.

In October, the Bank of England's Monetary Policy Committee (MPC) voted to keep the base rate at a historic low of 0.5 per cent by a majority of seven to two.

The dissenting voters backed an increase to 0.75 per cent, but the remaining seven MPC members said factors such as low inflation, weak pay growth and signs of a slowdown in the economic recovery justify keeping rates on hold.

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In the minutes from the latest MPC meeting, the majority voters argued: "A premature tightening in monetary policy might leave the economy vulnerable to shocks, with the scope for any stimulus that subsequently became necessary being limited by the effective lower bound on Bank rate."

A recent Reuters poll found that falling inflation, growth rates and stock market activity had eliminated the prospect of an interest rate rise before the end of the year.

Only one of 60 economists surveyed by the news agency expected that the base rate would increase from its record low sometime in 2014, compared to six out of 45 respondents in September.

In August, 17 out of 47 economists questioned thought the MPC would announce an interest hike before year-end.

One of the big factors in the change in expectations is the recent slowdown in inflation, which declined in September to 1.2 per cent, its lowest level in five years.

The majority of the experts surveyed held the view that the first interest rate rise will come in the first quarter of next year.

Commenting on the current outlook, Howard Archer, chief UK and European economist at IHS Global Insight, said: "It would now be a surprise if the Bank of England raised interest rates until well into 2015.

"The likelihood of a near-term interest rate hike from the Bank of England has seemingly receded substantially recently."

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