Interest Rate Predictions in 2013.

by Mark Johnston

Interest Rate Predictions in 2013.

Andrew Sentence, pricewaterhousecoopers senior economic adviser and member of the Monetary Policy Committee (MPC) suggests that rates need to rise to at least 3 per cent by 2015 in order to reduce the risk of ‘distorting’ the economy.

However as many experts know a rate rise at the moment would almost certainly affect most mortgage holders in a detrimental way, especially those on variable rate deals as it would mean an immediate increase in costs.

The Financial Service Authority (FSA) latest data shows that at least 72 per cent of mortgages current held are on variable rates.

Simon Ward, chief UK economist at Henderson global investors, suggests that rates will rise from there current record low of 0.5 per cent to at least 1 per cent by the second half of 2013.

It seems that some economists believe that this year the bank of England will come under greater pressure to raise the base rate and therefore they  remain stubbornly attached to the notion that rates will soon return to ‘normal’.

Therefore mainstream predictions are that interest rates will rise from the historically low 0.5 per cent to 0.75 per cent in around 2014 to 2017.

However on the flip side the Centre for Economic and Business Research (CEBR) stated last year that interest rates would remain on hold till at least 2016.

Money markets have predicted a bank rate cut in mid 2014 followed by a rise back to 0.5 per cent in 2015, up 0.75 per cent in 2017 and finally 1 per cent by 2019.

Citi, a leading investment bank, added to the debate that it expects the bank of England to keep the base rate at 0.5 per cent until 2017 as their official figures showed that the UK economy stagnated in 2012.

Ray Boulger, senior technical manager at John Charcol, said “Citi’s interest rate forecast is plausible. Even if the rate is not 0.5 per cent in 2017, it is not likely to be much higher”.

“A base rate of 0.5 per cent will begin to look like the new normal” believes Peter Spencer, chief economic adviser at Ernest & Young ITEM club.

All in all the majority of predictions are that the UK’s economic prospects for 2013 will remain poor and therefore the country could be facing financial trouble for at least another decade. In light of this it is also been predicted that the Monetary Policy Committee (MPC) are unlikely to raise rates for a few years yet.

Howard Archer, chief UK economist at think tank Global Insight, added “the bank of Englandis highly likely to keep the base rate down throughout 2013. My feeling is that 2013 will be another very difficult year but things should look a little better at the end of the year”.

In conclusion it appears that the bank of Englandhas the difficult decision on whether inflation is high enough for it to raise interest rates which would possibly put economic growth in jeopardy.

 



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