Interest rates are expected to remain as low as of 0.5% throughout 2010 to support UK recovery, experts stated.
Markets expected a rate increase in the third quarter of 2010 with borrowing costs of 1.5% or more by the end of the year. According to the forecast done by banks, this will result in the inflation of 2 % target.
This indicates that the borrowing costs will remain low for a longer period of time or the Bank could make efforts to increase the money supply with the help of its quantitative easing program, which presently stands at £200 billion.
According to Howard Archer, who is the chief economist at IHS Global Insight, Any policy tightening remains a long way off and interest rates are likely to stay down at 0.5 per cent until at least late 2010, and very possibly beyond.
The pound came down by more than 1% against the dollar after the Bank’s forecasts were published with interest rate raise.
Furthermore, Jonathan Loynes, Capital Economics’ chief European economist stated that At the very least, the disinflationary effects of the vast amount of slack in the economy, combined with the coming fiscal squeeze, suggest that monetary policy is unlikely to be tightened for a prolonged period.
Forecast done by Malcolm Barr indicated a reasonable rise in rates in the second half of 2010.
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