Interest rates could be held until 2011

Interest rates could remain on hold until 2011 but are likely to rise sharply thereafter, according to Skandia.


Skandia Investment Group (SIG) says interest rates are likely to remain on hold until at least the autumn, with tighter monetary policy after the general election delaying an increase.

SIG senior fund manager Ryan Hughes thinks a cautious outlook on behalf of the Bank of England could mean rates may not even rise until next year.

"The Bank may want to wait until it has seen two quarters of above trend growth, which on its forecasts will not happen until January 2011," he says.

But Hughes thinks once rates do rise they will do so sharply.

"The current level of interest rates is the lowest on record and a long way below the 5% rate many economists think of as neutral," he says.

"While there are good reasons why interest rates may stay low relative to history for some time to come, that should not stop significant rate increases in a year or two."

In the meantime, he adds, the low interest rate environment will support the economy, equities and corporate bonds.

His comments follow the MPC's decision to keep base rates at 0.5% earlier this month.

Garry Hale
www.hkwm.co.uk