Search Icon

Don’t expect an interest rate rise until 2016, says HSBC

A cocktail of political uncertainty, weaker inflation and an economic slowdown suggests the Bank of England will keep interest rates at their historic lows until 2016, the UK bank has said

The Bank of England, London
Bank of England officials have kept the central bank's interest rates at their historic lows since early 2009. Credit: Photo: Alamy

The Bank of England may not increase interest rates until as least 2016 because the UK’s economic growth has started to slow, according to analysts at the country's biggest bank.

HSBC has pushed back its forecast for the central bank’s next rate hike by a whole year, from the first quarter of 2015 to the first quarter of 2016.

The change to HSBC’s forecast reflects the Bank’s most recent quarterly Inflation report and evidence of an economic slowdown.

Market prices suggest that investors do not expect the Bank to raise interest rates until the final three months of 2015. However, HSBC analysts now believe a move won't come until even later.

Central bank officials have voted to keep the Bank’s interest rate at 0.5pc since early 2009, when the economy was struggling to recover from the financial crisis.

Simon Wells, chief UK economist at HSBC, said that the Bank of England expects the UK economy to grow by 2.9pc in 2015. However, "our own assessment is that growth will be weaker than this," said Mr Wells

“The risk of a sharper downturn in eurozone activity alongside a likely increase in economic uncertainty means we are revising down our 2015 growth forecast from 2.6pc to 2.4pc," he added.

Meanwhile, inflation “will probably dip below 1pc”, according to HSBC forecasts, as prices continue to grow much more slowly than the Bank's 2pc target.

Mark Carney, the Governor of the Bank of England, said earlier this month it was "more likely than not" that inflation would slide below 1pc over the next six months.

Rising political uncertainty in the lead up to the May 2015 general election may also factor into a postponement of rate rises.

“There is the possibility of various alliances or coalitions, which could lead to vastly different economic policies," said Mr Wells, who worked at the Bank of England before moving to HSBC.