When will interest rates rise?

The Bank of England base rate has been at a 0.5% for five and a half years, and now all eyes are on when interest rates will move from their historic low. Estimates have ranged from as early as November to the beginning of next year. Economists have largely ruled out an interest rate rise this year following a fall in the cost of living earlier this month.  There has also been speculation that Bank of England governor Mark Carney has struck a “secret pact” with Chancellor George Osborne to keep rates low ahead of next year’s general election.

However, the momentum is clearly building to increase interest rates, albeit gradually. Two members of the Bank’s Monetary Policy Committee voted earlier this month to increase rates from 0.5% to 0.75%, the first time in three years members of the committee have voted for an increase.

Centre for Economics and Business Research economist Sam Alderson says: “The minutes from the MPC will refuel speculation of a rate rise before the end of the year, something that appeared to have lost considerable momentum with the recent lower inflation figures, and will add to the uncertainty.” Alderson expects rates to eventually return to a “new normal” of about 2%.

Natalie Holt