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Interest rates to rise early next year, says NIESR

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The Bank of England will raise interest rates in February 2016, according to forecasts from the National Institute of Economic and Social Research (NIESR).

Rates have been held at 0.5 per cent, a historic low, since March 2009 but NIESR projects they will “increase gradually” from early next year despite a slowdown in the UK economy.

After an initial rise, it predicts rates will increase by 0.5 per cent annually, reaching 2 per cent by the end of 2018.

UK economic growth slowed in the third quarter but NIESR predicts this softening in growth will be “temporary”. It calculates the economy will expand by 2.4 per cent overall this year, and 2.3 per cent next year.

In other forecasts, NIESR said the rate of consumer price inflation will rise from close to zero per cent in 2015 to 1.1 per cent in 2016 and that from the middle of 2017 onwards inflation will be close to the Bank of England’s target of 2 per cent.

Unemployment will remain at around 5.25 per cent through the remainder of this year and in 2016.

Bank of England governor Mark Carney is expected to discuss the interest rate outlook tomorrow when the latest inflation report is published. 

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