An increase in interest rates has been on the cards to take place at the beginning of next year, while the CEBR previously predicted the Bank of England would raise rates in February.

CEBR expects the UK economy to grow by 2.5% this year, but anticipates this to slow to 2% in 2016 and then average to 1.7% over the period covering 2017-2020.

This, coupled with decreasing growth prospects across the global economy, means the UK economy is likely to keep inflation on the Consumer Price Index below 2% until 2017, giving the Bank room for manoeuvre to keep rates on hold.

The global economic slowdown, which has mainly been driven by growing weakness in emerging markets particularly in China, is holding back UK export prospects and restraining business investment, the forecasting house said.

Should this economic instability continue then the weight on growth will become even bigger, it added.

Earlier this month, Bank of England governor Mark Carney said the ongoing financial turmoil in China was unlikely to delay interest rate rises. Ian McCafferty, the only Monetary Policy Committee member to vote for a rise to the bank base rate in recent months, said last week that the Bank should start to increase rates now to minimise impact to the UK economy.

The CEBR said household spending is expected to account for the majority of growth over the next five years rather than trade or investment. With the UK continuing to import more than it exports, it explained that net trade will act as a drag on growth with the UK’s current account deficit expected to average £77bn over this period.

Scott Corfe, head of macroeconomics at CEBR, said the deterioration of the global economy would have significant downside risks to the UK’s growth prospects.

“With inflation expected to remain below the Bank of England’s central target of 2% until 2017, we think the Bank Rate will remain on hold until the middle of next year. A rate rise in May or August seems most likely to coincide with the inflation reports released in these months,” he said.

“Even when the Bank of England does raise rates, we expect the pace of rate rises to be very gradual. Even by 2020, we expect the Bank Rate to stand at just 2% – what CEBR believes is the ‘new normal’ for interest rates.”

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