Hi °C | Lo °C Interest rates are set to remain on hold for at least another six months, according to some of the province’s economists.
The Bank of England yesterday left its base interest rate at the all time low of 0.5% for the sixth consecutive month.
The forecast that it is likely to stay at that level until well into 2010 will come as a welcome boost to the large number of Northern Ireland homeowners on tracker or base rate-linked mortgages.
“Interest rates are not expected to start rising until the second half of 2010. When that eventually happens the rise will be very small and gradual,” said Northern Bank’s Angela McGowan.
“Assuming the economy keeps moving in the right direction, then a small increase in late summer of next year is a reasonable possibility — but it is unlikely that rates will be much more than 1% by the end of 2010.
“Low interest rates over the next year are a benefit to both local households and the local business community. In particular, households with a base rate or tracker mortgage will continue to enjoy much reduced interest payments and this should help to shore up local consumer demand and confidence levels,” she said.
Bank of Ireland’s Alan Bridle expects the base rate to remain at 0.5% for “at least” six months, and possibly a cut to 0.25% in the short term, before a rate of between 1% and 1.5% by the end of 2010.
Alison Donnelly from the Consumer Council said: “The news that the Bank of England is holding its interest rates at 0.5% is great news for home owners with a tracker or Standard Variable Rate mortgage. “However, the news may not be much comfort for those who are finding it hard to get a mortgage because they now need a bigger deposit to get the best deals.”
Ulster Bank’s Richard Ramsey said it will be the climb out of recession that sees rates go up.
“Ultimately, it is the inflation profile that will determine the appropriate level of interest rates.”
The Bank of England’s inflation forecasts suggest that the UK will undershoot its target of 2% over much of 2010 and early 2011. That means there would be less pressure on the bank to raise rates to keep inflation under control.
However, if the economic recovery gathers pace the rate of inflation on prices for food, energy and other items will rise, making a rate hike more likely.
