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Interest rates expected to rise in early 2016

Interest rates expected to rise in early 2016

Category: Economy

Updated: 30/08/2013
First Published: 30/08/2013

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One of the country's biggest business lobby groups has predicted that interest rates will only rise again in early 2016 – nine months earlier than Bank of England (BoE) predictions.

At the beginning of this month, the new governor of the BoE, Mark Carney, announced that the Bank will not consider raising interest rates from their current record-low of 0.5% until the UK unemployment rate has fallen below 7%. Currently the measure stands at 7.8%.

This new policy of linking BoE base rate to the unemployment threshold is known as forward guidance.

But in its latest market forecast, the British Chambers of Commerce (BCC) estimates that the UK's unemployment rate will fall below the 7% threshold at the end of 2015 - nine months earlier than what the BoE currently estimates. And the BCC says that if this happens, base rate should increase in early 2016.

"We believe that the 7.0% unemployment threshold is likely to be reached nine months earlier than the Monetary Policy Committee predicts, and we expect interest rates to go up early in 2016," said David Kern, BCC chief economist.

"This means that companies will still have a reasonably long period in which to plan and invest, which is good for business confidence."

The BCC report also unveiled a much rosier economic picture for the country in the months and years ahead.

The group upped its growth forecast from 0.9% to 1.3% for 2013, from 1.9% to 2.2% in 2014, and from 2.4% to 2.5% for 2015.

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