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Base rate forecast to remain unchanged until 2016

Base rate forecast to remain unchanged until 2016

Category: Economy

Updated: 16/01/2012
First Published: 16/01/2012

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The base rate of interest could remain at its record low of 0.5% until 2016, according to the latest predictions from a respected think-tank.

The Centre for Economics and Business Research (Cebr) said it thinks the UK has probably already double-dipped back into recession and that interest rates will have to be kept low as a result.

The forecasters believe that the UK economy contracted in the fourth quarter of last year and is also shrinking again at present, with two consecutive quarters of decline marking the start of a recession.

Expectations for growth for 2012 as a whole have been revised down from 0.7% growth as predicted last October to a decline of 0.4%.

However, it is also warned there is a risk of a more serious decline of 1.1% if developments in the Eurozone are particularly unfavourable.

Growth in the medium term is predicted to be sluggish, with growth in 2013 forecast to be minimal at 0.9% and from 2014 onwards at around 1% per annum.

As a consequence of the lack of spark in the economy, Cebr has made its prediction that the base rate of interest can be expected to remain at 0.5% until 2016.

The Bank of England lowered the rate to its current level in March 2009, much to the joy of mortgage borrowers, but the despair of savers.

Over the course of the past three years, mortgage borrowers lucky enough to have certain tracker mortgages or who have been comfortable sitting on their standard variable rate have reaped the financial benefits of record low rates.

At the same time, however, savers have struggled to find savings accounts which pay a decent rate of return.

It now seems these contrasting emotions of elation and frustration are set to persist for a few years more.

"We take no pleasure in outlining such a bleak forecast," said Douglas McWilliams, one of the report's authors and chief executive of Cebr.

"But the world is going through a fundamental change where previously poor economies are industrialising fast.

"This is good news for them, but because of the limits imposed by shortages of energy, minerals and food, some of their growth is at our expense."

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