China crisis to ‘delay UK interest rate rises’

China stock market
By Isabelle Bell

26 August 2015

Interest rate rises in the UK could be delayed in response to China's economic slowdown, according to the former Chairman of the Financial Services Authority.

Speaking to BBC Radio 4's Today programme, Lord Turner of Ecchinswell predicted that the point when interest rates rise will be "put even further back" as the "inevitable consequence" of China's economic problems.

Stock markets around the world tumbled on Monday in response to the biggest decline in China's stock market for eight years and the ongoing economic slowdown in the country.

The FTSE 100 suffered its worst one-day fall since September 2011, but had begun to recover by Tuesday after China cut its main interest rate.

Lord Turner said: "I think we are in deeply deflationary times, I think what has happened in China was in a sense predictable and indeed predicted.

"I think the consequence of that is whenever is the first move up in interest rates, there will be very few and the rate of increase will be shallow."

He added: "So if you were to say what will interest rates be in 2017/2018, I would be very surprised if the UK or US interest rates will be more than 2 or 2.5% even by 2018 and I think across a lot of the rest of the world, in Europe, in Japan, they will effectively be zero."

Lord Turner said that the level of company debt and household debt had slowly begun to go down in Britain over the last six years, but the increase in public debt had "more than offset that".

He said: "The crucial thing about debt is that once we have too much of it in the economy, we really don't know how to get rid of it rather than simply shift it around the economy."

Source: Press Association

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