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GDP growth pushes back rate increase until August

Interest rates are now reckoned to be unlikely to rise before August after last week’s GDP figures showing growth of 0.5 per cent in the first quarter.

The increase effectively cancelled out the previous quarter’s fall of 0.5 per cent.

Scottish Widows Investment Partnership chief economist Richard Dingwall-Smith says: “We were expecting a rise in May but after these numbers that looks extremely unlikely. If things pick up strongly, we may conceivably see a rise in the next few months but August is more likely.”

Bank rate has been at 0.5 per cent since March 2009.

First Action Finance head of communications Jonathan Cornell says March’s fall in inflation from 4.4 per cent to 4 per cent along with the GDP data has also pushed his expectation back to August.

He says: “If inflation raced upwards, increasing at a faster pace, it would have been May but now the danger of a rate rise has receded and we are looking at August.”

Institute for Public Policy Research chief economist Tony Dolphin warned that two quarters of aggregated flat growth means the economy is technically “as close to recession as possible”.

Reform chief economist Patrick Nolan says he expects the 0.5 per cent figure, like the previous quarter’s, to be revised upwards. He says: “There has been positive economic data recently and we need to be careful not to read too much into the figure until we see the revision.

“The impact of the fiscal consolidation, coming out of a global financial crisis and the Arab Spring and what that means for fuel prices make the future hard to predict.”

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