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When to Expect Interest Rate Increases

Written By On 21/05/2014

Contrasting forecasts continue regarding speculation as to when interest rates will begin to increase.

Before Bank of England governor Mark Carney spoke about the upgrading of the Bank's Inflation Report last week, many economists predicted the UK will see their first interest rate rise in more than five years very shortly.

The market has been aware that the time is getting closer with contrasting opinions. Some were expecting it to happen this year and others believed it would occur by next year's first quarter.

They were basing their opinions on the strength of Britain's economy. The pound had been rising steadily for some time now against it's counterparts and was the highest it had been for a while against the US dollar and Euro.

They saw all the signs pointing to the Bank Rate starting to hike slowly but surely back around the five per cent figure that it was before the financial catastrophe.

But many economists have not been correct for some time now. They continued to underestimate the major economic damage inflicted upon the UK by both government and the British public. Britain has barely survived thus far and is still lingering in a very precarious financial situation.

Mr Carney indicated that an interest rate rise will not be used as a weapon to slow down property prices and describes it as 'the last line of defence'.

However, deputy governor Charlie Bean, due to retire the end of next month, said otherwise to the London School of Economics.

Mr Bean said:

Monetary policy may be a blunt tool for addressing financial stability risks, but it does have the virtue that it gets in all of the cracks. So, there may well be times when monetary policy is the only game in town to guard against incipient financial stability risks.

This week's news of the consumer prices index showing inflation hitting 1.8 per cent was not expected.

Samuel Tombs appears to have been one of the more successful economists when it's come to predictions. He expects CPI inflation rates to stay well below the government's two per cent aim.

Mr Tombs says:

This would support the recovery in real consumer spending and strengthen the case for keeping official interest rates on hold until the second half of next year.

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