Bank of England to Wait Until After Election Before Interest Rate Rise

The Bank of England has said that it will wait until after the next general election to raise the level of interest rates as Britain faces a threat from the Eurozone’s current economic woes what with it being its biggest trading partner.

The National Institute of Economic and Social Research (NIESR) had been expecting the first rate rise at around February time 2015 but has now pushed its expectations back until June 2015 which would be a month after the nation has voted. It has however said that a rate rise could come even later.

Current interest rates in the country sit at an all-time low of 0.5% are expected to reach 1%, according to NIESR, by the end of 2015 which would rise gradually to 2.75% by the end of 2019 with the bank expected to look through low annual inflation which is currently at 1.2%

Business investment has contributed significantly to Britain’s recovery in recent years with growth in the UK expected to peak at 3% this year. However, there has been a predicted fall to 2.5% in 2015 and 2% in 2016 which would make for the slowest recovery in a century even though growth has become better balanced through various sectors.

The problem is not so much Britain’s as their trading partners as the Eurozone continues to flag economically which in turn is having an effect on the UK as general business and consumer confidence would also weaken, weighing on growth. Simon Kirby, principal research fellow at the NIESR think tank said of the situation:

“Continued stagnation or even worse in the euro area compared to our baseline projection would knock the growth forecast quite significantly. Certainly a resurgence of 2010-2012 could really have a negative impact on the UK economy. I’m not saying [the Eurozone crisis] is going to return, but clearly it is a risk.”

The outlook for the Eurozone does not look particularly strong at the moment with much of the bloc looking depressed with NIESR cutting the region’s growth forecast to 0.7% this year from 1%, and to 1.3% next year from 1.8%. Eurozone inflation – currently at 0.4% – is expected to remain below 1% until the middle of next year.  The European Commission also cut its forecast for growth in 2014 to 0.8% from a previous forecast of 1.2%. It expects growth in 2015 to be 1.1%, and not 1.7% as it stated previously.

Pierre Moscovici, commissioner for economic and financial affairs, said: “There is no single, simple answer to the challenges facing the European economy. We must all assume our responsibilities, in Brussels, in national capitals and in our regions, to generate higher growth and deliver a real boost to employment for our citizens.”

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