Interest Rates Rise

January 19th, 2015

Despite the falling oil proce boosting UK growth, Interest rates are unlikely to rise until early next year. The Daily Mail have published an article with Peter Spencer, cheif economic adviser to the Item Club, giving his view on why this is the case.

The falling oil price comes just as the recovery was losing momentum.

‘We have described the previous weakness of commodity prices as a silver lining in the storm clouds gathering over the world economy. But this has turned to gold.’

The Item Club’s panel of economists use the Treasury’s economic models to develop their forecasts.

But, despite the booming economy, Spencer said he no longer expected interest rates to rise this year, because the falling cost of oil and other raw materials will also keep a lid on inflation.

‘It’s very difficult for the Bank of England’s Monetary Policy Committee. It’s hard to see a rate rise. The fall in commodity prices will mean one or two years of very low inflation,’ Spencer said.

The Governor of the Bank of England, Mark Carney, is already having to write a letter to the Chancellor explaining why inflation is so low, at 0.5 per cent.

Spencer suggested it would be difficult to raise rates when the MPC is already undershooting its target.”

 

Please click here to see the full article.