In a recent survey carried out amongst brokers by United Trust Bank, 22% of respondents thought that the Bank of England would start increasing interest rates by the end of 2014 whilst a further 51% thought that a rate rise by mid-2015 was most likely. Some 19% predicted that the first interest rate rise would come in the second half of 2015 and the remaining 8% suggested Mark Carney wouldn’t touch interest rates until 2016 or later.
When asked at what level brokers expected the Bank of England base rate to settle at within the next three years, the vast majority (87%) suggested it would settle at around 2-3%. 9% of brokers thought the base rate would stay at around 1% and just 4% of brokers thought the rate would move to around 4% or above.
Harley Kagan, managing director of United Trust Bank, said: “One of Mark Carney’s targets for starting to increase interest rates, that of seeing unemployment fall to 7% or lower, was surpassed earlier in the year and the rate of unemployment now stands at around 6.5%. With economic growth also remaining positive and the recession now behind us some brokers clearly feel that an interest rate increase is imminent.
“However, Mr Carney and the Monetary Policy Committee will be acutely aware of the significance of an interest rate rise after the base rate has been held at such a low level for such a long time and they will want to be absolutely assured that the economic recovery is strong enough to withstand any shockwaves this will send out.
“Some businesses and individuals will have taken advantage of the low interest rate and increased their borrowings and the Bank of England will not want to place undue pressure on pockets and P&Ls if it believes it could jeopardise continued growth.
“It’s interesting to see that most brokers feel that a return to high interest rates is unlikely, in the short to medium term anyway. Experts such as Charles Bean, the former Bank of England deputy governor, agree. Earlier this year he suggested that interest rates are more likely to settle at around 3% in a few years’ time than return to the 5% average seen in the decade leading up to the financial crisis. With retail price inflation at less than 2% and wage inflation even lower than that, it does seem unlikely that higher interest rates will need to be employed, at least for the next few years.”