Base Interest Rates Set To Remain At
Low Levels Until The End Of 2015
A new economic forecast by Ernst & Young’s (EY) independent forecasting group, the Item Club, reckons that Bank of England (BoE) interest rates will remain at their historic low until the end of 2015 as wages start to outstrip inflation.
The Bank of England’s base rate has an impact on mortgage loans on property and savings returns and with the base rate remaining at 0.5%, it expects house prices to rise by 7.4% this year and 7.2% next year.The item club expect that the Bank of England will maintain the 0.5% base rate until at least the third quarter of 2015 due to decent but unspectacular growth in the intervening period – driven by growing consumer confidence – will allow the rate to be increased gradually in the fourth quarter of 2015.
Fears have been voiced of overheating property prices, especially in the South of England and in London, however E&Y also say that any fears of another property price bubble can be eased by the Financial Conduct Authority (FCA).
New mortgage-lending rules, due to be brought in during April 2014 are expected to prevent property owners overextending themselves, and help ease price rises to 4.2% in 2016.
Ernst & Young Item Club’s Chief Economic Adviser, Peter Spencer, said: “The FCA will assume crucial importance to ensure mortgage (loan) multiples do not become too stretched and that affordability is scrupulously checked. If these controls are rigorously applied this will eventually constrain London property prices and head off problems when interest rates rise. Until now the recovery has been financed by a fall in the amount households save, but it appears to be moving to a firmer footing. The consumer upturn will be given a boost from real wages and rising employment, while investment is finally kicking in.”
The Ernst & Young prediction comes alongside a forecast that predicts workers take home incomes will overtake inflation this month for the first time in six years with average wage increases of 1.7% expected to overtake the consumer price index (CPI) inflation rate of 1.6% in 2014.
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