Interest rates forecast to remain at record low until 2016

Chris Papadopoullos
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Mortgage holders to benefit from another year of low rates (Source: Getty)
Interest rates set by the Bank of England (BoE) might not rise off their record lows until 2016, economists from HSBC said yesterday.

HSBC recently offered a 0.99 per cent mortgage rate for an initial two-year period – its lowest ever rate.

Meanwhile, political uncertainty, low inflation and weak economic growth are all set to deter policy makers from choosing to raise interest rates, which would have a knock-on effect on retail bank mortgage rates.

The May general election could be a significant source of uncertainty.

“There is the possibility of various alliances or coalitions, which could lead to vastly different economic policies,” said Simon Wells, chief UK economist at HSBC. One big uncertainty would be a referendum on EU membership, Wells added, which could weigh on UK business investment.

The HSBC economists lowered their 2015 growth forecasts for the UK from 2.6 per cent to 2.4 per cent – lower than BoE forecasts.

The delayed rate hike prediction comes after a BoE Inflation Report last week warned inflation could dip below one per cent over the next six months, and the threat of new recession in the Eurozone could hinder the UK’s recovery.

“The Monetary Policy Committee appears to fear unintentionally slowing the economy more than it fears inflation,” Wells said.

Meanwhile, a cooling housing market should reduce concern surrounding any adverse effects of keeping rates down.

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