Two-minute briefing: Predictions have shifted again in 2015. We
explain why - and what it means for mortgages and savings
Bank Rate, at 0.5pc for nearly six years, was held again last month. A rise in
interest rates in 2015 is looking less likely after a sharp decline in the
rate of inflation at the end of 2014.
Read the coverage in the Bank
of England channel for in-depth coverage of the Bank's latest
views on the economy, which are so crucial to the anticipated timing of base
rate rises. Below we cover the main points and explain what it all means for savings
and mortgages.
What has changed?
In early summer last year, there was feverish speculation that the first rate
rise would come in 2014. The economy was bouncing back and analysts believed
the Bank Rate would need to rise to cool growth and head off inflation that
might follow.
But the recovery has proved less robust than hoped and inflation has tumbled
to 1pc, way below the 2pc target. [See the chart below]. Hopes of a rate
rise in 2014 evapourated. HSBC, in November, pushed back its forecast for
the next rate hike by a whole year, to the first quarter of 2016. It blamed
a cocktail of political uncertainty, weaker inflation and an economic
slowdown.
Once again, hopes that a rate rise was just months away proved to be a false dawn. Throughout the financial crisis economists have failed to grasp the vast headwinds facing Western economies and stood by forecasts that a base rate rise was around the corner.
The harsh reality of Britian's economic situation - colossal state and consumer debts and the end of an economic boom driven by baby boomers who are now retiring - could mean many more years of low rates. The global situation could also contribute further deflationary pressure. The European Union has just slipped into deflation and the plummeting oil price - it has halved since last summer - is yet to be fully registered in economies and inflation data. A currency war in Asia - policy in Japan is determinedly devaluing its currency - may export deflation on a grand scale around the world.
Once again, hopes that a rate rise was just months away proved to be a false dawn. Throughout the financial crisis economists have failed to grasp the vast headwinds facing Western economies and stood by forecasts that a base rate rise was around the corner.
The harsh reality of Britian's economic situation - colossal state and consumer debts and the end of an economic boom driven by baby boomers who are now retiring - could mean many more years of low rates. The global situation could also contribute further deflationary pressure. The European Union has just slipped into deflation and the plummeting oil price - it has halved since last summer - is yet to be fully registered in economies and inflation data. A currency war in Asia - policy in Japan is determinedly devaluing its currency - may export deflation on a grand scale around the world.
What's the latest predictions?
The Bank Rate, at 0.5pc since March 2009, is expected to stay there until July or August 2016, according to markets. This has shifted from a forecast of March 2016 at the start of 2015.
Read thre full story here
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