The Bank of England will cut rates to 0.1 per cent at its November meeting, but any interest rate hikes will not happen until the end of the decade, says Paul Hollingsworth, UK economist at Capital Economics.
Speaking to Fund Strategy, Hollingsworth says he expects rates to be cut again this year, following the Bank’s historic decision to cut interest rates to 0.25 per cent earlier this month.
However, he says that the Bank has not got much more room to move with rates, so more emphasis will be put on other fiscal measures.
“I think the Bank hasn’t actually got that much room to go with rates anymore, as they have said they don’t want to cut to zero or even go negative. I think once you get to that 0.1 per cent that is as low as rates can go,” he says.
“That means other measures are going to become the primary tool for the Bank to respond to the economy. I think in November as long as we don’t see a severe deterioration in economic data that one extra rate cut might be enough. Further expansion of QE, more gilt purchases or some additional corporate bond purchases as well will be things they look at,” he says.
While all talk at the moment is on rate cuts, a likely pick-up in inflation and savers starved of real returns means many are already looking to when the BoE is likely to raise interest rates. But Hollingsworth says it will be “a very long time” before the Bank raises rates.
“Clearly at the moment the economy is weak and we need to see how the economy responds to uncertainty, which is likely to persist for quite a few years. Assuming we do trigger Article 50 early next year, we still have two years of negotiations, so we will see the economy growing slower than it would have done.
“I think it is going to be a number of years, more towards the end of the decade, before we see interest rates rises come back on the agenda,” he adds.
Watch the full video interview on the UK Edge website.