The British Chambers of Commerce (BCC) expects the UK’s official interest rate to rise in the third quarter of next year, to 0.75 per cent – two quarters later than its original prediction.
It then predicts further modest increases in official rates, in small 0.25 percentage point steps, with official interest rates reaching 1 per cent in the last three months of 2015 and 1.75 per cent in the last three months of 2016.
Director general John Longworth says the UK economy’s dependence on consumer spending and mortgages means it is “particularly sensitive to interest rates”.
“Any short-term rate rises could present a huge risk to our economy.”
The BCC has downgraded its UK GDP growth forecast for 2014 from 3.2 per cent to 3 per cent, but this figure still represents the fastest growth experienced by the British economy since 2007.
The BCC has also revised down its growth forecasts for the following two years from 2.8 per cent to 2.6 per cent in 2015 and from 2.5 per cent to 2.4 per cent in 2016. This is largely due to slower than expected growth in household consumption, exports and services, which are to be the main contributors to GDP in the next few years.
Longworth believes the downgrade is a warning sign. He urges the government to waste no time in addressing key areas that are holding back good firms, such as access to finance to grow their business.
