News

Interest rates predicted to rise in 2016

Andrew Oxlade has reported in the Telegraph that the market predicts the first rise in the UK Bank Rate around May or June 2016 with the conensus of economist views pointing to March.

According to the Telegraphs, there are also signs of a strengthening economy: the UK unemployment rate has been falling, now at 5.5 per cent, and pay rises are running at 2.7 per cent, up from 1.3pc a year earlier and the highest rate since June 2011[1].

The Bank of England’s quarterly Inflation Report showed how rate expectations have shifted recently. The Inflation Report highlighted that the market expected rates to rise far more slowly this time than during previous rate rise cycles[2].

This poor forecasting has been going on throughout the financial crisis. Economists have largely failed to grasp the vast headwinds facing Western economies, and the UK, and stood by forecasts that a base rate rise was around the corner[3].

The harsh reality of Britian’s economic situation – colossal state and consumer debts and the end of an economic boom driven by baby boomers who are now retiring – could mean many more years of low rates. The global situation could also contribute further deflationary pressure[4].

[1] Andrew Oxlade, “Interest rates predictions: markets suggest June 2016 for first rise”, www.telegraph.com
[2] ibid
[3] ibid
[4] ibid