Belfast Telegraph

Interest rates won't rise this year despite economic growth

By David Elliott

Interest rates won't rise this year despite news the UK economy grew at its fastest rate since 2007.

That's the view of Danske Bank Northern Ireland economist Angela McGowan who said the central bank will need to see more evidence of a sustained recovery before they hike rates.

"Regardless of the good economic news, the low interest rate environment is still expected to stay in 2014," she said. "The Bank of England will be hoping to see a much more balanced recovery this year before any changes to monetary policy are made – in particular they will be looking for evidence of growth in business investment levels and exports."

Ms McGowan said the Northern Ireland economy grew by 0.6% in the fourth quarter of 2013, compared to growth of 0.7% for the UK economy as reported in yesterday's GDP report.

Expansion for the UK as a whole was slower than the previous two quarters and below the pace signalled by recent surveys.

With UK output still 1.3% below its pre-recession peak, the figures appeared to support the Bank of England's argument there is enough slack to support continued stimulus.

Speculation over an earlier-than-expected rate rise has mounted following a rapid fall in unemployment to 7.1%, close to the bank's 7% forward guidance threshold for considering possible hikes.

Dr Esmond Birney, chief economist at PwC in Northern Ireland, pointed out that growth for the full year of 2013, although in positive territory, was still well down on that in 2007.

"Although last year's rate of growth was the highest since 2007, it remains well below the 3.5% experienced that year," he said.

"With the exception of construction, which posted a 0.3% fall in the final three months of the year after two quarters of expansion, growth was fairly evenly spread across the sectors.

"That suggests that the UK should be well placed to deliver growth of around 2.5% in 2014.

"Unfortunately we have no Q4 regional data for Northern Ireland and the other UK regions, but today's UK data are consistent with modest but healthy growth in Northern Ireland of around 1% in 2013 with the likelihood of acceleration this year to perhaps around 1.5%."

Belfast Telegraph

Popular