Belfast Telegraph

Northern Ireland economist insists interest rate increase will be small

By Jamie Stinson

An increase in interest rates will not be seen until late next year, according to a Northern Ireland economist- and when there is a rise, it will be a small one.

Danske Bank chief economist Angela McGowan was speaking after the Bank of England (BoE)announced it has kept interest rates at its record low level.

It was widely predicted earlier this year the BoE's chairman Mark Carney would increase the rate by the end of 2014, but experts believe the base rate will remain at 0.5% until the back end of 2015.

Ms McGowan highlighted that the central bank was being cautious not to increase the rate before the economy was ready.

"The Bank of England will be careful not to move on rates until the conditions are right. The exact timing will depend entirely on the economic data," she said

The decision by the bank also saw its quantitative easing (QE) programme to boost the money supply remain unchanged at £375bn.

Ms McGowan said an increase in the rate is not expected until around the third quarter of 2015, and added that when there is a rise, it will be a small one. "Currently markets are expecting the first hike in September 2015 but the timing of the first increase is actually not that important.

"What is important for businesses and households to know is that when base rate is adjusted it will be done very slowly with small adjustments made over a very long period of time."

To allay the fears of mortgage-holders, and to the detriment of savers, interest rates may not return to pre-crash levels for a long time to come.

She added: "Forward guidance from the Bank of England tells us that adjustments will not be sudden and dramatic - on the contrary we should expect that the UK base rate to only reach 2% around 2019.

"Thus even in five years time interest rates are expected to be significantly below the historical average of 4.5 to 5%."

In the Eurozone, Mr Carney's counterpart, Mario Draghi, the president of European Central Bank said it would reassess its current stimulus package early next year, hinting that it may try and stimulate the economy through the purchase of government bonds.

Belfast Telegraph