The Bank of England (BoE) forecasts indicate that the bank interest rate needs to remain at historic lows until at least next autumn, that’s according to a report published in the Financial Times (FT.com) Wednesday.
The impetus behind the move is to prevent inflation falling too low below the bank’s target of 2 per cent.
After publishing its economic forecasts which show healthy economic growth and very weak inflation for the UK in the coming months the ahead, the bank’s is sending out signals that there is no justification yet to tighten monetary policy now or in the immediate future.
The news will come as a relief to those with home and buy-to-let mortgages whose repayments are linked to current interest rates and should encourage those who are planning to take out a loan for a home, or invest in more rental property.
The BoE’s Inflation Report justifies the move by stating:
The expansion in UK domestic demand has continued. But the outlook for global growth has weakened. Some asset and commodity prices have fallen, as have market interest rate expectations. Growth is projected to be a little weaker than in August. It slows slightly in the near term, settling back to around historical average rates, underpinned by a gradual pickup in demand abroad and a revival in productivity and real household income growth at home.
Inflation has fallen further below the MPC’s 2% target, reflecting the impact of lower food, energy and import prices and some continued drag from domestic slack. Inflation is expected to remain below the target in the near term, and is more likely than not to fall temporarily below 1% at some point over the next six months. It then rises gradually back to the target as external pressures fade and unit labour cost growth picks up. The MPC’s guidance on the expected path for Bank Rate continues to apply. When Bank Rate does begin to rise, the pace of rate increases is expected to be gradual, with rates probably remaining below average historical levels for some time.
The bank thinks inflation will likely fall below 1 per cent of the next 6 months or so, but will then rising to around 1.2 per cent by the end of 2014 and keep on rising gradually higher to 2 per cent by the end of 2017.
UK GDP growth is expected to hit 3.5 per cent for the whole of 2014, falling to 2.9 per cent in 2015, and then 2.6 per cent in 2016 and 2017.
Forward guidance issued by the bank indicates that when interest rate raises do come, they will be gradual and will remain well below historic levels for some time to come.
… LandlordZONE.
Article courtesy of LandlordZONE
