Interest rates to rise next year?

Stuart Thomson the Ignis chief economist believes that UK interest rates won’t rise until 2013 despite the “window of opportunity” for a change in February next year.

Thomson said raising interest rates in February 2012 would be a good move given that next year is going to be a difficult time for global economic growth, however, he believes that doing so now would be like “kicking an economy when it is down.”

Thomson also believes that there is likely another round of quantitative easing in both the UK and the US, as this is the clear plan B for the nations’ governments.

He said: “Inflation will come down rapidly in February 2012 and for a brief period, there will be real income growth – so that will be the time to do it.”

“In the second half of 2012, there will be more quantitative easing and in 2013 there will be a surge in activity and the potential opportunity to increase interest rates,” he added

Bank of England governor Mervyn King has warned that a rise in rates would undermine an already weak economy and curtail a much-needed rebalancing towards exports.

King and a majority of the MPC have stressed to critics of their decision to keep interest rates at the record low level of 0.5% that prices would decline next year to the target level.

George Buckley, chief UK economist at Deutsche Bank, said Wednesday’s GDP figures, which showed the economy was flat over the last six months with several key areas in decline, was a “deal-breaker for an early rate hike”.

He said the “extremely weak” figures gave little reason to raise rates before November.

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