Interest rates are still not expected to rise until the end of 2015
Although the annual growth rate is now projected at 1.5% and unemployment is falling faster than originally projected, it is still unlikely that employment levels will fall to the 7% level that the bank of England have said will trigger rate increases. Even in 2015 any interest rate increase is likely to be small but it will begin to creep up gradually over the following two years to 2017/2018.
One major problem with the British economy is that figures for the country as a whole are weighted by the continual success of London and the South East. So before interest rates can start to rise the bank needs to know that there is growth in the whole of the country not just London and the South East.
This is further highlighted by some news reports about property prices in London rising by 10% in one month. Admittedly this is in a small part of London and this also refers to asking prices, not actual sale prices. However it does demonstrate that property prices in London are certainly on the increase. Fast rising prices across the country will no doubt trigger an increase in interest rates, but again we are unlikely to see widespread strong increases in property values for a couple of years yet.
A bigger worry for the government now is inflation which is running at 2.7% and not the 2% target level. Although to many of us 2% is not high it is still the highest in Europe. Surprisingly one of the the culprits for this higher inflation is food prices which have risen substantially over the last six years.
2017 is when David Cameron intends to hold a referendum on Britain’s future in the European Union. Can we really afford to wait 4 years for a vote that will probably determine that we will stay in Europe anyway?
Potential investors who want to expand in Europe can hardly be reassured about Britain’s future in Europe. Can we afford to allow this to happen?