Interest rates may not rise until 2017, hints Bank of England


For the third consecutive month, just one of the nine Monetary Policy Committee members voted to raise rates this month.The Bank also noted that the first rate rise may not happen next year after all, as it released its quarterly inflation report.The revised forecast is a boost for borrowers but a blow to savers, who had been tipped in the summer that rates could start to rise at the beginning of 2016.

In recent months turmoil has ripped through global financial markets and Britain’s growth has also edged down in the most recent quarter.

The Bank today further downgraded Britain’s growth outlook to 2.7 per cent this year, while also cutting it next year to 2.5 per cent from 2.7 per cent.

worried looking couple

 Lower interest rates for longer are a blow to savers

Bank of England Governor Mark Carney

Bank of England Governor Mark Carney
At the same time, the Bank said inflation is now likely to remain low well into next year and only set to reach around 2 per cent at the end of 2016, with stagnant prices making it harder for the Bank to raise interest rates.The majority of the Bank’s policymakers felt that the more gloomy global growth picture, together with ongoing low inflation, meant rates should continue to remain on hold.Maike Currie, associate investment director at Fidelity International, said: “In a global world, the fortunes of developing and developed markets are closely intertwined – and as growth in the former slows, global demand and trade will follow suit, putting downward pressure on prices, entrenching the ‘ice age’ conditions of low rates for some time to come.

“With an interest rate rise now seemingly pushed out as far as 2017, this is good news for borrowers, but bad news for savers.

“It leaves investors and retirees facing the ongoing conundrum of finding a home for their money in an environment of low inflation and low interest rates – a backdrop which typically makes for measly returns.”

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