Interest Rate Low for Years says Report

The Bank of England is likely to keep the country’s base lending rate at or near the current low of 0.5% until early 2014, say economists associated with Ernst & Young.  The reason for this is to ensure that inflation does not slip below 1% when the next set of Government cost cutting measures enter the economy to try and battle our massive deficit. At present, inflation is expected to be above 2%, but this is due to the rise in VAT to 20%, and increasing energy prices as we head towards Autumn and Winter.

According to Ernst & Young, the Bank of England will keep interest rates at 0.5% for the next three years, in order to keep inflation at the plus 1%; the BoE are desperate to stop us from entering a deflationary cycle, such as one that hit Japan in the early 1990's.

This low interest rate will be a welcomed by residential landlords.  Remember, there were predictions that interest rates would rise year on year from the end of 2010 to combat our jump in inflation early in 2010 due to the previous Govts Quantative Easing Policy. 

Peter Spencer is a chief economist at Ernst & Young and he noted that the 0.5% base interest rate is quickly becoming the “new normal.”

How much interest rates will hold or rise in the near future depends on how the coalition government cut spending.  There are more voices saying this will slow down the UK from emerging from recession; thus interest rates must stay low for the forseeable future but if growth continues (as it did in the last quarter), there may be pressure on the BoE's 2% inflation target.