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Keep rates low to protect UK from euro crisis, says Bank of England

Officials warn rise will not happen until 2015 as it could leave Britons 'vulnerable to shocks'

  • UK's growth is easing as eurozone is rocked by uncertainty
  • The prospect of interest rates staying at record lows will be welcomed by millions of borrowers,
  • But it will be a blow to savers who have lost out since rates were slashed during the recession.

A rise in interest rates is unlikely until next year as it could leave the UK ‘vulnerable to shocks’, the Bank of England signalled yesterday.

Bank officials also warned that the UK’s recovering economy was showing ‘signs that the pace of growth was beginning to ease’ as it struggled in the face of a deepening economic crisis in the eurozone.

The downbeat comments, published yesterday in the minutes of this month’s meeting of the monetary policy committee, suggested there will be no increase in official borrowing costs until after the General Election in May.

Its nine-strong committee voted to leave rates at 0.5 per cent – where they have been since March 2009 – with just two members arguing for an immediate increase to 0.75 per cent.

The prospect of interest rates staying at record lows well into next year will be welcomed by millions of borrowers, but it will be a blow to savers who have lost out since rates were slashed during the recession.

Earlier this year it was thought the Bank would sanction the first increase in interest rates since 2007 in either late 2014 or early 2015, but with inflation well below the 2 per cent target at 1.2 per cent many observers now expect them to stay on hold for far longer.

The Bank highlighted ‘pessimism about the global economic outlook’ and in particular the single currency bloc, where growth in Germany, the region’s powerhouse economy, ‘appeared to have stalled’.

‘Downside news in the euro area had increased the risks to the durability of the UK expansion,’ the Bank said. ‘Premature tightening in monetary policy [rise in interest rates] might leave the economy vulnerable to shocks.’

Britain is the fastest-growing major economy in the developed world, which grew by 0.9 per cent in the second quarter of this year, and official figures on Friday will reveal how it fared between July and September. However, it is feared they will show that the recovery is slowing as sluggish wage growth, worries about the global economy, and the crisis in the eurozone take their toll.

Ben Brettell, senior economist at stockbroker Hargreaves Lansdown, said: ‘The prospect of recession in the eurozone – our largest export market – poses a severe threat to the UK’s recovery. I can’t see the logic in voting for higher rates at present. I expect them to remain on hold until mid-2015 at the very earliest, and possibly not rise until much later in the year.’

÷ House-building activity is at its strongest levels since 2007 as the recovery broadens out beyond London to the rest of the UK, the National House Building Council reported yesterday.

But it also warned that as work picks up the industry is seeing shortages of skilled tradesmen such as bricklayers, carpenters and decorators.


Source: Mail online

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