Bank may have to keep interest rates in hold amid world slowdown

The Centre for Economics and Business Research (CEBR) said it expects rates to remain at their historic 0.5 per cent lows until next summer before a hike by the Bank’s Monetary Policy Committee.

Previously the forecaster had said the Bank would raise rates in February, but plunging markets in China that have sent shockwaves around the world have caused it to push back this date.

The CEBR expects the UK economy to grow by 2.5 per cent this year, but see this slow to two per cent in 2016 and then average just 1.7 per cent over the years 2017 to 2020.

By contrast, independent Government watchdog the Office for Budget Responsibility expects the UK economy to grow at 2.4 per cent this year, and remain above two per cent over the following period.

The new report said: “The global economic slowdown, driven by substantial weakness in emerging markets – most notably China – is holding back export prospects and curbing business investment.”

It added: “If the world economy continues to falter, then these weights on growth will become even bigger.”

The forecasting group said the consumer price index measure of inflation is expected to stand below 2 per cent until 2017, giving the Bank room for manoeuvre to keep rates on hold.

A number of economists have expressed concerns about the sustainability of the UK’s recovery because it is driven by consumer spending, rather than selling goods and services abroad.