Business

Interest rates unchanged until 2012, say economists

Finance
Image caption Savers and borrowers have seen contrasting fortunes as a result of the low interest rates

A majority of economists polled by the BBC expect interest rates to remain unchanged until next year.

Of the 32 forecasters, who are also regularly polled by the Treasury, 26 predicted that rates would not rise this year, and three predicted there would be no rate increase until 2013.

More than half expected the Bank rate to rise from its record low of 0.5% to at least 1.5% by the end of 2012.

The Bank rate was held at 0.5% on Thursday.

Chances

The Bank rate has now been at a record low for more than two years.

This has hit savers, but it has made home loans cheaper, ensuring some can continue to meet their mortgage payments despite considerable pressure on their household finances.

Minutes from its July meeting showed the Bank of England's Monetary Policy Committee (MPC) voted seven to two in favour of holding rates at 0.5%.

Policymakers said there was a reduced chance of a rise in interest rates in the near term, given recent economic weakness.

Estimates

The MPC, which meets every month to set UK interest rates, is made up of nine members: the governor, two deputy governors, the Bank's chief economist, the executive director for markets and four external members appointed directly by the chancellor.

However, the Treasury also gauges opinion by seeking the views of 35 leading economists.

The BBC has gathered the forecasts of most of them, or somebody from their organisation, regarding interest rates.

The highest proportion - 12 in total - expected rates to first go up in the first quarter of 2012, of which eight specified rates rising in February.

Six expected rates to rise in the final quarter of this year, with one at the other end of the spectrum forecasting no change until the second quarter of 2013.

There was a range of views regarding Bank rate predictions for the end of 2012.

Thirteen of those economists asked expected it to be at 1.5%. The next most popular prediction was 1%, but forecasts ranged from 0.5% to 2.5%.

The results are in marked contrast to a similar poll of 22 economists in April, in which 14 predicted interest rates would go up in August 2011, and 12 said the Bank rate would be at 1% by the end of the year.

Mortgages

The widespread expectation of little movement in interest rates has led to falling mortgage rates for homeowners.

The reduction in the price of fixed-rate mortgages is being driven by a fall in swap rates, upon which the deals are partially based.

The average five-year fixed-rate deal has fallen to 5.02%, the lowest level since before the credit crunch, according to financial information service Moneyfacts.

But one campaign group has claimed that the value of UK savings has been eroded by £50bn in the past year because of inflation and low interest rates.

The Save Our Savers group wrote last month to each member of the Bank of England's rate-setting committee urging them to raise the Bank rate to help pensioners and encourage saving.

Those asked in the BBC research were: Peter Dixon, of Commerzbank; Hetal Mehta, of Daiwa Capital Markets; Howard Archer, of IHS Global Insight; Alan Clarke, of Scotia Capital; James Knightley, of ING Financial Markets; Azad Zangana, of Schroders Investment Management; Sarah Hewin, of Standard Chartered Bank; Blerina Uruci, of Barclays Capital; Peter Spencer, of the Item Club; David Smith, of Beacon Economic Forecasting; Scott Corfe, of CEBR; Ross Williamson, of Capital Economics; George Buckley, of Deutsche Bank; Allan Monks, of JP Morgan; Jamie Dannhauser, of Lombard Street Research; Neil Prothero, of EIU; David Meenagh, of Liverpool Macro Research; Melanie Baker, of Morgan Stanley; Alexander Pefanis, of HSBC; David Kern, of the British Chamber of Commerce; Adrian Paul, of Goldman Sachs; Simon Kirby, of NIESR; Ross Walker, of the Royal Bank of Scotland; Nick Bate, of Bank of America; Philip Rush, of Nomura; Nishit Mittal, of UBS; Sunita Bali, of Experian Economics; Peter Warburton, of Economic Perspectives; Samuel Slama, of Societe Generale; Ragini Madan, of Cambridge Econometrics; David Muir, of the CBI; Anne O'Kelly, of Citigroup; and Thomas Springbett, of EC.

Related Internet links

The BBC is not responsible for the content of external Internet sites