UK Interest Rates Expected To Remain On Hold

14 May 2012 17:00 - Florence Fullalove

    



UK Interest Rates Expected To Remain On Hold

Sir Mervyn King, the Governor of the Bank of England is expected to signal later this week that interest rates will not rise from their record low until late 2013 at the earliest. The rate is forecasted to remain on hold as the central bank used its quarterly inflation report to cut its forecasts for the UK’s economic activity as they expect higher than predicted inflation.

Chief UK economist at IHS Global Insight, Howard Archer, said, “It is odds-on that the new forecasts contained in the report will be the all too familiar and dispiriting mix of reduced growth but higher inflation expectations.” He added, “We expect it to indicate that interest rates are unlikely to rise from the current level of 0.5% until least late-2913, and very possibly not until 2014.”

The return to recession reported by the Office for National Statistics for the first quarter of this year means that economic growth has already fallen short of that predicted by the Bank three months ago. Meanwhile inflation is proving more persistent than anticipated, currently running at an annual rate of 3.5%. The combination of a stagnating economy and rapid price rises represents a headache for the Bank’s monetary policy-makers as raising rates to overcome could damage growth. Economists therefore expect the Bank to signal that rates will remain on hold for many more months despite inflation being well above its official 2% target.

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Related Links :
Bank of England - Central Bank of the UK
HS Global Insight - Economic Forecasts
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