Rates tipped to rise long before Bank’s forecast

THE BANK of England’s forward guidance policy may halt years sooner than projected, according to a surprising new analysis.

According to the National Institute of Economic and Social Research (Niesr), there is a one in five chance that the Bank will hike interest rates as early as the first three months of 2014. However, Niesr say rates are most likely to rise in mid-2015, around a year before the Bank’s forecast.

Jonathan Portes, Niesr’s director, told City A.M: “Most forecasts have got unemployment wrong over the past few years. We have to reflect that there’s a lot of uncertainty. In general, the recovery appears to be proceeding more strongly than the Bank projected in August.”

He added: “The point of forward guidance was to give markets confidence that there wasn’t going to be an early rate hike. It does not seem to have achieved very much on those terms.”

Niesr expects the UK economy to grow by 1.4 per cent this year, 0.2 percentage points fasted than it projected in August, followed by growth of two per cent in 2014.