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Expect mid-2016 rate rise, economists warn

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Mortgage holders should expect base rate to rise in the middle of 2016, the Centre for Economics and Business Research has suggested.

Forecasts produced by the firm rejected suggestions that rates would rise at the start of the year, instead predicting that a mid-2016 rise would rise.

Some mortgage lenders have already started to raise rates in anticipation of this rise.

The firm expects the economy to grow 2.5% this year, then 2% in 2016. The following three years are expected to see 1.7% growth per annum.

Weakness in the global economy could harm the UK, with the slowdown in China also a barrier for this country.

This could force the Bank of England to leave interest rates at their current historic low of 0.5% for longer than expected.

Scott Corfe, head of macroeconomics at the Centre for Economics and Business Research, said there were many uncertainties at present.

“It’s clear that the global economy has deteriorated significantly over the past few months and there are significant downside risks to the UK’s own prospects,” he said.

“With inflation expected to remain below the Bank of England’s central target of 2% until 2017, we think the Bank Rate will remain on hold until the middle of next year. A rate rise in May or August seems most likely, to coincide with the Inflation Reports released in these months.

“Even when the Bank of England does raise rates, we expect the pace of rate rises to be very gradual. Even by 2020, we expect the Bank Rate to stand at just 2% – what CEBR believes is the ‘new normal’ for interest rates.”

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