Belfast Telegraph

King may not be explicit, but the low interest rates look set to stay

By Graeme Evans

The Bank of England has given a clear hint that the UK will mirror the US in keeping interest rates at record lows until 2013.

While Sir Mervyn King refused to follow US counterpart Ben Bernanke in pledging low rates, the figures echo the City's view that inflation will be below its 2% target in two years' time - even with rates at 0.5%.

Economists said the latest projections show that the Bank could hold off from raising rates until 2013, extending a run that has seen the cost of borrowing stay at its record low for 29 months.

The prospect of an extended freeze in rates has already driven the price of a fixed rate mortgage to an all-time low as lenders factor in a longer spell with the Bank's base rate at rock-bottom.

However, it has meant more misery for pensioners and savers who will continue to suffer low returns on their money.

The US Federal Reserve gave a lift to beleaguered stock markets yesterday by announcing that US interest rates were likely to stay at their "exceptionally low levels" until at least 2013.

Sir Mervyn stressed that given how quickly things can change he would not be echoing the Fed in explicitly committing to keep interest rates on hold.

Market forecasts are for interest rates that edge up from 0.50% to 0.75% around the start of 2013.

They are then seen rising very gradually to 1.5% in late-2013/early-2014 and to around 2% by the third quarter of 2014.

PwC chief economist Esmond Birnie said: "It is now almost certain that interest rates will remain at around 0.5% for the foreseeable future, offering some relief to borrowers and business and to the mortgage market."

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