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Bank forecast to hold interest rates until after election

The Bank of England will hold interest rates at their historic low until after the general election next year, according to the National Institute of Economic and Social Research.

According to The Guardian, the think-tank had previously forecast a rate hike in February, but has now pushed this back to June, one month after the general election.

NIESR forecasts interest rates will rise from the current level of 0.5 per cent to 1 per cent by the end of 2015 before rising gradually to to 2.75 per cent by the end of 2019.

The think-tank also says ongoing troubles in the eurozone remain the biggest threat to UK growth forecasts, which it expects to peak at 3 per cent this year before slowing to 2.5 per cent in 2015 and 2 per cent in 2016.

NIESR principal research fellow Simon Kirby says: “Continued stagnation or even worse in the euro area compared to our baseline projection would knock the growth forecast quite significantly. Certainly a resurgence of 2010-2012 could really have a negative impact on the UK economy.”

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  1. Raising interest rates is a traditional mechanism for damping inflation so, for as long as inflation remains barely more than 1% p.a., interest rates will remain suppressed. They’ve been at just 0.5% for so long now that I can’t recall why such a very low rate is considered unhealthy.

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