Interest rates will stay on hold until late 2012, says Cebr
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Cebr is forecasting that UK interest rates will stay on hold for at least two years, with an extra £100bn of quantitative easing being pumped into the economy.
It believes the UK economy will show growth of 1.6% in 2010 and 1.3% in 2011, 1.4% in 2012, 1.8% in 2013 and 2.4% in 2014.
It says given the normal margin of forecasting error, these forecasts imply a one in ten chance of negative growth for the UK economy in 2011, though Cebr sticks to its view that a world double dip is unlikely because of the strength of the emerging economies.
However, partly because of the effect of the VAT hike in January 2011, Cebr’s central forecast for growth in Q1 2011 is only 0.1%, which implies that there is nearly a 50% chance of negative growth for that quarter.
The new forecasts incorporate Cebr’s predictions for the effects of the Comprehensive Spending Review to be announced this week.
The report says: “‘We expect the authorities to push the monetary policy levers hard in the opposite direction to the fiscal policy levers.
“Our forecasts include an additional £100 billion in quantitative easing; base rates remaining at 0.5% till late 2012 at least and 10 year gilt yields at in the 2.5 to 2.75% range till end 2013.
“The relationship between monetary policy and economic growth is less predictable than that for fiscal policy and growth in the short term, particularly at times when the flame of economic growth is weak.
“Had a decision not already been made which is administratively difficult to reverse at short notice we would have been tempted to call for the VAT rise to 20% in January 2011 to be postponed.”
Charles Davis, managing economist and main author of the report, says: “All the business survey evidence suggests that despite the consumer starting to run down savings again, confidence remains weak. With the end of the recovery from restocking growth will be slow in the coming months, even without fiscal retrenchment.
“So the levers of monetary policy will be aggressively moved to fast forward again to offset the impact of the CSR in the coming years.”
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Readers' comments (6)
GARY WRIGHT | 18 Oct 2010 11:45 am
I can't believe all these 'think tanks' etc are all still being paid to come out with their predictions as to what's going to happen.
Everyone contradicts everyone else, but I suppose that would happen. After all if they agreed with each other, they wouldn't get the free press.
I would like all these 'think tanks & trade bodies' to put their money where their mouth is & back up their predictions with financial penalties if they get it wrong. For example if my client chooses a 2 year tracker after reading this article & rates rise, will the Cebr subsidise my client's mortgage payments???? I think not.
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Anonymous | 18 Oct 2010 3:26 pm
Gary, give it a break. You should be welcoming these economic forecasts, especially good news forecasts. Your clients come to you because they hope you read the economic forecasts and help educate your them. You need to set out the benifits and disadvantages of each and help them make an informed choice. You are not responsible for the mortgage they choose providing you have made them aware of the implications if they get it wrong.
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Luke Atkinson | 18 Oct 2010 5:16 pm
Nobody knows what will happen with interest rates, not even the MPC!
How many of these think tanks predicted the sub prime crash? interest rates as low as they are? etc etc etc
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bobby | 19 Oct 2010 12:49 pm
Why not keep them at 0.5% until 2015, 2020, 2050, 2500 ?. It seems the ONLY focus of the economists and the Government is interest rates at 0% or as near as damn it and look what has happened in Japan on the back of that scenario for 2 decides now. It is a DISASTEROUS measure and the best ting would be if interests rates went up to 2% from next month.
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Colin | 19 Oct 2010 1:49 pm
Bobby - and I though Andrew Sentance was hawkish!!!
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Anonymous | 28 Oct 2010 4:40 pm
Andrew Sentance.I thought that Hawk got lost in the clouds and the Doves.
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