- interest rates to stay on hold until 2015
So says UK accountants Ernst & Young’s think tank the ITEM club in their Summer Forecast
The report says GDP growth of 3.1% is on the cards for 2014 as the economy is moving from recovery to expansion. This compares to 2% for Canada and 1.8% for Germany.
While the consumer did most of the running over the first half of the recovery, businesses are now expected to pick up the baton with capital investment by firms set to surprise on the upside. As the consumer pauses for breath the report predicts growth will moderate to 2.5% in 2015.
The EY ITEM Club Forecast says that interest rates will remain on hold this year, as wages will only recover slowly. However, the first rise is expected to come in early 2015.
The markets are jumping the gun in thinking that rates will rise this year. Low inflation, the strong pound, and ongoing risks from the Eurozone, all suggest caution in raising rates. The three new members joining the Monetary Policy Committee this July and August will surely take time to find their feet.
With all that in mind, and wages expected to remain subdued, we’d think interest rates will be kept on hold until the first quarter of next year.
An upbeat assessment but understandably cautious on the timing of interest rate rises
Full report here
