UK interest rates ‘to rise next year’

<p>The CBI predicts interest rates will increase early next year.</p>

Interest rates in the UK will rise in the first three months of next year, according to a prediction by leading business group the Confederation of British Industry (CBI).

Growth in the UK economy is expected to reach three per cent in 2014, the CBI said in a new report, with this figure up from its previous estimate of 2.7 per cent.

Interest rates have remained at 0.5 per cent in the UK – a record low for the country – for an extended period of time, but a rate rise appears to be on the cards in the next 12 months.

Speaking on BBC Radio 5 Live, CBI director-general John Cridland explained that there are signs entrepreneurs across the whole economy, including those with businesses in the service, manufacturing and exports industries, are feeling more confident about the economy.

"Businesses recognise the realities of election time but want all parties to ensure their policies make a positive difference," he said. "Politicians must be wary of the risk of headline-grabbing policies that weaken investment, opportunity and jobs."

Growth forecasts

The National Institute of Economic and Social Research and the Organisation for Economic Co-operation and Development have both increased their growth forecasts for the UK economy in recent weeks, with the CBI following in their footsteps. The CBI has also upgraded its predictions for economic growth next year, boosting its previous prediction of 2.5 per cent up to 2.7 per cent.

Last week, both the European Central Bank and the Bank of England's Monetary Policy Committee announced that interest rates in Europe and the UK respectively are going to be held at their current levels for another month.

Both organisations are likely to carefully manage interest rates in the coming year or so in an attempt to limit any impact on global markets as a result of the European and UK base rates rising. Mario Draghi, head of the ECB, recently hinted the body could increase rates next month.

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