05 11 2014

Bank of England ‘will wait until after election to raise interest rates’

The Bank of England will wait until after the general election to raise interest rates as the threat of a resurgent eurozone crisis hangs over the UK economy, according to a leading thinktank.

The National Institute of Economic and Social Research (NIESR) pushed back its expectation of the first rate rise to June 2015, a month after the nation votes, but said it could be even later. Previously it was expecting the first hike in February.

NIESR said rates, currently at an all-time low of 0.5%, would reach 1% by the end of 2015, rising gradually to 2.75% by the end of 2019. The Bank is expected to look through low annual inflation, currently at 1.2%.

Growth in the UK is expected to peak this year at 3% – unchanged from NIESR’s August forecast – before slowing to 2.5% in 2015, and 2% in 2016 as the slowest recovery in a century continues. Growth has become better balanced, it said, with business investment providing a bigger contribution.

A flagging eurozone economy and a return to the depths of the region’s crisis is the single biggest threat to the forecasts, NIESR warned.