Rates are expected to remain at 0.1% until the end of next year as the recession is deepest in “maybe several centuries”
Interest rates are expected to remain low throughout this year and the next amid warnings, Britain will face the deepest recession in several centuries.
The Bank of England is expected to keep frozen rates at an all-time low of 0.1% until at least the end of 2021, according to a survey of Reuters economists.
This would mean more misery for savers who have seen their nest egg yields decline since rates were cut in 2008 and 2009 during the financial crisis.
Savers’ misery: Bank of England should keep frozen rates at historic lows of 0.1% until at least the end of 2021, Reuters economists poll finds
But ultra-low borrowing costs will be welcomed by families taking out mortgages and other loans.
Many reports have highlighted the impact of the coronavirus lockdown on the economy.
Colossal cost of Covid
Britain is facing an “absolutely colossal” increase in borrowing which will have to be paid for by higher taxes.
Paul Johnson, director of the Institute for Fiscal Studies, warned that the public deficit would reach £ 260 billion this year, well above the £ 60 billion expected before the epidemic. “So an absolutely colossal increase to a level never seen in peacetime,” he said.
“I suspect we are more likely to end up with higher taxes. “
The government borrowed £ 48.7 billion in the fiscal year to the end of March.
This was slightly higher than the target of £ 47.4 billion. Johnson said the numbers are “the numbers before the storm.”
Jan Vlieghe, a member of the Bank of England panel who sets interest rates, said: “We are experiencing a faster and deeper economic contraction than anything we have seen in the last century, if not centuries. “
The economic research group IHS Markit’s activity index – where the drop is less than 50 – fell to a record low of 12.9 this month, up from 36 already dismal in March.
This marked the largest decline in the private sector since the survey began over 20 years ago – fueling fears that the economy is headed for its worst recession since the Great Depression.
Ruth Gregory, a senior British economist at Capital Economics, said: “The appetizing declines confirm that the foreclosure has plunged the economy into a recession of unprecedented speed and depth. “
The National Institute for Economic and Social Research has warned that unemployment will rise from 5 million to over 6 million – bringing it from the current rate of 3.9% to 20%.