Bank will not lift rates until mid-2016, says CEBR think-tank

Forecasters also expressed concerns over the sustainability of the recovery

The Bank of England chief Mark Carney is not expected to increase interest rates until the middle of 2016 (Getty)

Bank of England officials will follow in the footsteps of their US counterparts and delay a rise in interest rates, according to a leading think-tank.

The Centre for Economics and Business Research (CEBR) predicts that the BoE’s policymakers will keep rates at a record low until the middle of 2016 amid uncertainty about the health of the global economy, which is under pressure from low oil prices and slowing growth in China, the world’s second largest economy.

Its previous forecasts suggested that the Bank would hike rates in February.

The CEBR expects the UK’s economic growth to slow from 2.5 per cent this year to 2 per cent in 2016 and then average just 1.7 per cent in the following three years until 2020.

It anticipates that inflation will remain below 2 per cent until 2017, giving the BoE room for manoeuvre to keep rates on hold.

The forecasters also expressed concerns over the sustainability of the recovery, suggesting that household spending will account for much of the growth over the next five years. Net trade will hinder growth as the UK continues to import far more than it exports, it added.

Scott Corfe, head of macroeconomics at CEBR, said it was clear that the global economy has “deteriorated significantly over the past few months”, and warned of “significant downside risks to the UK’s own prospects”. He said a rate rise in May or August seemed most likely, to coincide with the inflation reports released in these months.

“Even when the Bank of England does raise rates, we expect the pace of rate rises to be very gradual,” Mr Corfe said. “Even by 2020, we expect the Bank rate to stand at just 2 per cent – what CEBR believes is the ‘new normal’ for interest rates.”

The US Federal Reserve’s policymakers decided not to raise rates this month despite strong jobs growth, hinting that China’s economic slowdown had played a part in the decision. Last week, the Federal Reserve chairman, Janet Yellen, insisted that the US central bank is “on track” to raise rates by the end of the year for the first time since 2006.

Even by 2020, we expect the Bank rate to stand at just 2 per cent