Interest rates will not rise until summer of 2020

Last week the Monetary Policy Committee shocked financial markets by voting 8-1 to leave interest rates unchanged, but one thing is for sure: rates are not going up anytime soon.

In fact financial markets are betting on interest rates being 0.5%, or lower, until the summer of 2020.

In the months before the EU referendum analysts were trying to predict when the rate, which has been at 0.5% since 2009, would rise rather than fall. Now markets expect rates to be cut in the near future and remain at 0.5% until the summer of 2020.

Some economists fear that the UK is in danger of entering a Japanese-style deflationary environment, given that interest rates are expected to remain lower for longer.

Azad Zangana, senior European economist and strategist at Schroders, says: "We believe August is the most likely time for a decrease in the bank rate.

"It gives the Bank of England more time to gauge the impact of the EU referendum. As we said earlier this week, the July meeting was too early to fully understand what the economic data is telling them."

In the wake of the economic shock caused by Brexit, the Bank of England has to consider which measures it should deploy to encourage economic growth.

The referendum brought about a mix of juxtaposed forces. Slowdown of economic growth could tip the economy into a recession, as some analysts believe; at the same time inflation could rise because of the sharp fall in sterling.

In addition to interest rate changes, the Bank has other measures it can deploy. It has, for example, already relaxed capital buffers so banks can lend more and it could also restart its quantitative easing.

This article was originally published by our sister magazineMoney Observer here.

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