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Rate change unlikely until 2012 (at the earliest!)

Rate change unlikely until 2012 (at the earliest!)

Category: Economy

Updated: 21/07/2011
First Published: 21/07/2011

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 It is now over 6 months old so the content may be out of date.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 Bank of England is unlikely to start raising interest rates until next year at the earliest, experts have suggested.

Some commentators even believe rates might not begin to rise until 2014 after the minutes of the latest Monetary Policy Committee meeting showed the voting in July remained unchanged on the previous month.

As in June, seven members voted to keep rates at their historic low of 0.5% for the 28th month in a row, while two put forward arguments why they wanted rates to rise.

Spencer Dale and Martin Weale remain in the minority with both wanting rates to rise by 0.25% to 0.75%.

The minutes of the meeting, however, suggest the rest of the committee is unlikely to be swayed towards their way of thinking just yet.

Explaining why rates were left unchanged, the committee said that the fragility of the economy had been worse than expected, and that it was likely to carry on struggling for longer than originally anticipated.

With inflation unexpectedly falling in June, the pressure for rates to start rising in order to combat soaring prices also eased.

Commenting on the minutes, David Kern, chief economist at the British Chambers of Commerce, said the majority of the committee still believes that inflation will come down towards the target over the medium-term.

He also pointed out that there is a greater awareness of the potential negative effects that the debt problems in the Eurozone could have on these shores.

"There is now hope that rates will be kept on hold until early 2012," Mr Kern added.

"If this proves right, it would be a welcome development. It would be premature and potentially dangerous to raise interest rates while the Government is implementing a very tough deficit cutting programme.

"With wage pressures remaining modest, and with businesses and consumers facing acute pressures, it is right to wait before raising rates."

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