Interest rates to hit 2.6pc in 2017
In its Spring 2014 Item Club Forecast the accountancy and services firm forecasts an increase in the base rate to 0.7% in 2015, followed by an increase to 1.6% in 2016 and then 2.6% in 2017.
The prediction comes at a time when fears abound that an interest rate hike could slow Britain’s recovery.
But Peter Spencer, chief economist of the EY Item Club, said: “While risks remain, there’s no question that the UK’s economic recovery is on an increasingly firm footing.
“With GDP projected to grow 2.9% this year and 2.3% in 2015, and interest rates unlikely to rise until late 2015, the outlook is for a period of ‘steady as she goes’, characterised by sustained if unspectacular growth and underpinned by relatively low inflation.”
Bank of England governor Mark Carney has also come out and said he will not risk the UK’s recovery by increasing interest rates because it is “neither balanced nor sustainable”.
He said: “A few quarters of above-trend growth driven by household spending are a good start but they aren’t sufficient for sustained momentum.
“For a sustained and balanced recovery, the degree of stimulus will need to remain exceptional for some time.”