Neil Woodford: Interest rate rise not on the cards for next couple of years

Bank of England

An interest rate rise will not happen anytime soon, according to star fund manager Neil Woodford, despite inflation being predicted to reach 3% by the end of 2017.

Although the vast majority of economic forecasters expect the bank rate to remain at its all-time low of 0.25% this year, some commentators, including Kristin Forbes, a member of the Bank of England's nine-strong Monetary Policy Committee, suggest surging levels of inflation could lead to a hike in interest rates. For more on this read When will UK interest rates rise?

But Mr Woodford said predictions that inflation will surprise on the high side and soar up to 5% were "wide of the mark".

 

Deflation concerns

"Tightening policy will not happen either," added Mr Woodford. "In fact I would be willing to bet that Mark Carney (the Bank of England governor) will leave his position in 2019 having never increased interest rates. Quantitative easing may go, but rates are not going up."

Woodford said inflation will peak at around 3%, adding that longer term he is more concerned about the threat of deflation. The latest figures show UK inflation as measured by the Consumer Prices Index is 1.6%

Turning his thoughts to the economy, Mr Woodford said he is not surprised GDP growth has not fallen off a cliff following last June's Brexit vote. Some commentators, particularly those who formed part of the 'remain' campaign, had predicted Britain's economy would fall into recession.

"There are challenges ahead. There's little in the way of wage growth, so there will be pressure on the consumer," said Mr Woodford.

 

If Mr Woodford's predictions that low interest rates are here to stay prove correct, it will deal a further blow for savers. Since rates were cut to 0.5% in March 2009, a record low at the time, savers have endured the worst returns on cash ever experienced.

For some of this period inflation has been high, with the consumer price index reaching 5.2% in September 2011.

Moneywise columnist Jeff Prestridge believes savers could be in for a better time in 2017

This story was originally written for our sister magazine, Money Observer.

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