INTEREST rates will not rise in the UK next year, according to Stephen Jones, chief investment officer of Aegon Asset Management unit Kames Capital.
He believes the base rate will stay at 0.5 per cent throughout 2015, on deteriorating economic growth in the UK with no expectation of wage rises and little pressure from inflation. But he predicted that the US will start raising rates at the end of 2015 as the only economy robust enough to do so.
Mr Jones predicted that the core of the Bank of England's Monetary Policy Committee (MPC) will vote to hold rates, even though the market is pricing in an increase in the latter six months of the year.
Pointing out that the central bank has an inflation-centred mandate, but the consumer prices index inflation rate has only met the target level of two per cent on one occasion since the financial crisis, he said: "The rhetoric from central banks continues to differ from their actions. They have had a core bias to support growth and ignore inflation since the credit crisis, and I think that will persist next year.
"Our central prediction is for growth to come off marginally in the UK in 2015, while we do not expect inflation to become an issue, with no wage rises in the pipeline to force the MPC's hand."
He then expects inflation to move towards the two per cent target on a view of two to three years, "but it is unlikely to suddenly start shooting higher thanks to the period of strength the pound enjoyed at the start of this year, and because there is little wage inflation".
Bank of England governor Mark Carney said this week that interest rates will grow more slowly than expected.
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