Interest rates could stay sub-1% ‘for five years'

Some economists are predicting that the Bank of England will keep Bank Base Rate at '1% or lower' for the next five years.

The Bank announced yesterday that Base Rate would be maintained at its record low of 0.5% for the ninth consecutive month, and many economic forecasters have predicted that the Rate would remain at that level well into 2010.

The latest prediction for rates longer term will be music to the ears of mortgage borrowers, millions of whom have seen their mortgage payments reduce substantially since the rate cutting began in September 2008, prior to which Bank Base Rate was 5%.

In many instances, the reduction in monthly payments has greatly reduced the impact of the recession on household finances.

Roger Bootle of Capital Economics said homeowners, or people thinking of taking out a mortgage, should expect low interest rates to stick around.

He said: "A prolonged period of low interest rates will be required to allow the economy to withstand the looming fiscal austerity.

"My money is on the Bank rate staying at 1% or lower for five years."

Bootle added that the Bank should consider cutting the rate "all the way to zero."

Other economists seemed to concur.

Ian McCafferty, chief economic adviser to the business lobby group, the CBI, said:

"Economic growth will be anaemic at best across 2010, so the Bank will have to continue looking to monetary policy levers for some time yet.

"Interest rates are likely to remain low for some time."