CEBR says interest rates will remain at 0.5% until 2016
The Centre for Economics and Business Research (CEBR), a leading think tank with an excellent record for correctly forecasting economic performance has said that it believes interest rates will remain at 0.5 per cent until 2016.
The CEBR made the right call on a variety of forecasts for the economy in 2011, beating virtually all other analysts and winning all prizes from organisations that rank prediction success in the UK.
The organisation believes that the Bank of England will hold interest rates at their historic low of 0.5 per cent into 2016. If base rate did stay at that level until January 2016, it would make it an unprecedented 81 months of no change in base rate, the longest period of static rates since the 1940’s.
Scott Corfe at the CEBR said: “The Bank will need to provide ongoing support to the economy through ultra-low interest rates and more quantitative easing. Even when rates go up they are likely to go up only gradually, reaching 1.25 per cent in 2017 and it could take until 2019 to reach three per cent.”
Read more: What will happen to UK house prices in 2012?
If the CEBR is correct in its predictions it would be a move that would benefit homeowners with a mortgage as long as they stay on a tracker or low standard variable rate deal with their mortgage provider. However, savers, already long-suffering as a result of low interest rates for the past three years would likely face a further four years of low returns and difficulties in beating inflation.
Mortgage borrowers with a tracker would benefit but the euro debt crisis is still pushing up the cost of borrowing for new borrowers. If the CEBR is correct and base rate does remain at 0.5 per cent until 2016 then borrowers would be better off staying on a low tracker deal. If rates began to rise in 2013 and gradually increased to around three per cent by 2016, the most competitive five-year fixed rate mortgages, currently around 3.30 – 3.50 per cent would work out as the best option.
However, not everyone agrees with the CEBR. Ernst & Young’s Item Club releases its updated predictions for the economy tomorrow which is expected to forecast that interest rates will go up in early 2013 and then gradually increase up to four per cent by 2017.
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