With the UK Bank Rate remaining at the historic low of 0.5%, speculation continues about when and by how much interest rates will rise in the future.
Leading the predictions that rates will remain low for longer is the influential Ernst & Young ITEM Club. They believe that the Bank Rate will stay at 0.5% to at least the start of 2014.
That’s a long time for interest rates to remain so low.
Former Bank of England Deputy Governor Sir John Gieve is warning that rates will have to rise more sharply, to keep price inflation under control. He expects to see the Bank Rate at 2.5% a year from now.
Somewhere in the middle of these predictions is the market in general, which appears to be pricing in an expectation for rates to reach between 1% and 1.5% in twelve months time.
Regardless of who has made the most accurate prediction, rates appear to only have one direction to travel from here. It is the timing and extent of future rate rises that remains so uncertain.
Here at Informed Choice, we back the predictions that rates will remain lower for longer, although possibly not to the extent of the ITEM Club predictions. We do not think that the Bank of England will risk derailing economic recovery by pushing up the cost of borrowing.
Rising interest rates will, of course, mean good news for savers but bad news for borrowers. Speculation on interest rates is bound to continue for some time yet.
