The Bank of England will have to keep interest rates at their record low of 0.5% until 2014, a leading economic forecaster has said.

The Ernst & Young Item Club said rates would need to be kept low to counter-balance the government's spending cuts.

"A base rate of 0.5% will begin to look like the new normal," Professor Peter Spencer from the Item Club said.

The Office for Budget Responsibility (OBR) has said that it expects rates to start to rise next year.

Interest rates have stood at 0.5% since March 2009.

"The new coalition's plans to cut the deficit are certainly ambitious," said Prof Spencer.

"On the assumption that the government is able to implement the overall reduction of £40bn set out in the Budget, we expect that UK growth will struggle to reach 1% this year but will gradually speed up in the following years to give the UK a high-quality recovery based on trade and investment."

The Item Club believes the Consumer Prices Index (CPI) measure of inflation will stay above the Bank of England's 2% target over the next 18 months, helped by high energy prices and increases in VAT.

But it says inflation will then fall "well below 2% as these effects wear off and spare capacity bears down on pricing decisions and wage bargaining".

"To prevent CPI inflation moving below 1% it will be necessary keep the Bank base rate low at 0.5% for much longer than the OBR and the markets have anticipated," Item said.

Source: BBC News

Business Secretary Vince Cable has accused high street banks of "ripping off" their customers after it emerged that some are charging up to 167% interest on unauthorised overdrafts.

Mr Cable also said customers are losing out because of a lack of competition in a marketplace dominated by a small number of big banks.

He was speaking after a survey for the BBC's Panorama programme revealed the average interest charged on unauthorised overdrafts was as much as 167%.

The research also found banks were demanding an average 32% interest on authorised overdrafts, despite advertised rates of around 19%.

Mr Cable said: "When we talk about restructuring the banks what's going to come out of this is a more competitive system where the customers are not ripped off.

"One of the negative side effects of this crisis is that our banking system that was already very concentrated is now even more concentrated so there's less competition, less choice and bigger temptation for banks to earn margins at the expense of their customers."

Source: Press Association

The Government has announced plans to change the rate at which private sector pensions are increased each year.

Pensions Minister Steve Webb has called for the schemes to rise each year in line with inflation as measured by the consumer prices index (CPI), rather than the retail prices index (RPI).

The move, which is expected to be introduced next year, would bring the inflation measure used for private sector pensions in line with public sector ones.

The Government also recently announced that benefits and the state pension would rise in line with CPI rather than RPI in future.

CPI is considered to be a more appropriate measure of inflation for pensioners, as it excludes housing costs, such as mortgage interest, which retired people are less likely to pay. But the move is likely to cost workers hundreds of pounds a year over the course of their retirement, as CPI is generally lower than RPI.

The Government also announced that benefits paid by pensions safety net the Pension Protection Fund and the Financial Assistance Scheme would also rise in line with CPI rather than RPI in future.

In a written statement, Mr Webb said: "The Government believes the CPI provides a more appropriate measure of pension recipients' inflation experiences and is also consistent with the measure of inflation used by the Bank of England. We believe, therefore, it is right to use the same index in determining increases for all occupational pensions and payments made by the Pension Protection Fund and Financial Assistance Scheme."

Source: Press Association

Most people want employers to lose the right to tell people when to retire, according to a survey by the charity, Age UK.

It says the government should scrap forced retirement immediately, currently set at 65 years for both men and women.

The survey showed more than two thirds thought the principle of forced retirement was wrong.

Age UK is asking the government to make clear its plans for the retirement age.

Under the current system, employers can tell any member of staff to leave work once they pass their 65th birthday, whether the individual wants to stop work or not.

One who did not want to retire was John White, a 69 year-old postman.

He was forced to leave work in July last year, despite the fact he loved his job and was good at it - a fact confirmed by his manager.

He points out that the higher-paid professions, such as politicians, doctors and judges, can keep on working past 65 - the age at which the state pension is paid to men.

Source: BBC News

The steep slide in BP's share price is bad news for UK pension funds - the vast majority of which will hold a stake in the company.

Defined benefit pension schemes are typically thought to have around 1.5% of their assets invested directly in BP, accounting for around 6% of all the money they hold in UK equities.

But some funds may hold considerably more, for example a pension scheme that tries to replicate the performance of the FTSE 100 would have around 6% of its total assets invested in the company.

BP's share price has now fallen by around a third since the Deepwater Horizon rig exploded and sank on April 20, killing 11 workers.

It is difficult to put a figure on exactly how much this will have wiped off the value of pension schemes, but it is thought to be hundreds of millions of pounds, if not billions of pounds, once the impact on defined contribution schemes and personal pensions is also factored in.

Laith Khalaf, pensions analyst at Hargreaves Lansdown, said: "The poor performance of a big stock like BP can have a disproportionate impact on funds. There have also been other falls in the stock market as well. If the market had been doing well in recent months, it might not have been such a big issue."

Source: Press Association

Consumers have been given more time to refer a complaint about controversial payment protection insurance (PPI) to the ombudsman.

The Financial Services Authority said it was temporarily waiving the six month time limit in which people need to refer a complaint to the Financial Ombudsman Service after they have received their final response from the company involved.

The move, which comes into force from Friday and will run until October 27 this year, applies to people who received a final response from the firm they bought the cover from between November 28 last year and April 28, 2010.

The regulator said the action was being taken to ensure that people who had recently complained about the sale of PPI were not disadvantaged by running out of time to refer their complaint to the ombudsman.

It is currently working with the industry to ensure that customers are treated consistently and fairly when they complain about the sale of PPI and when they buy a policy.

PPI covers debt repayments if the holder is unable to work due to an accident or illness or if they are made redundant.

But it has come in for heavy criticism after research found it had been mis-sold to many consumers who would never be able to claim on it, while others felt pressurised into taking it out alongside a loan or credit card.

Source:Press Association

Speeding up the raising of the state pension age from 65 to 68 is to be part of the UK government's first reforms.

The plan will be in the Pensions and Savings Bill, which was outlined in the Queen's Speech.

The state pension age is already scheduled to rise to 68 in stages, between 2024 and 2046.

Separately, the government will also restore a link between the basic state pension and the rise in average earnings, from 2011.

The move should lead to a substantial long-term improvement in the value of the state pension.

Its value as a proportion of earnings has declined, from 26% to 16%, since the old link between average earnings and the state pension was cut in 1980, and replaced with a link to inflation as measured by the Retail Prices Index.

As well as linking the state pension increases to the rise in average earnings, the government has also already pledged to raise pensions in any case "by the higher of earnings, prices or 2.5%".

It was the Labour government's policy in recent years to raise state pensions by at least 2.5%, even if inflation was lower, though this was a discretionary policy renewed each year.

The coalition describes its new approach as giving pensioners a "triple-lock" so they will always benefit from a minimum 2.5% annual rise.

Source: BBC News

Housing market activity bounced back during March with a 25% jump in the number of mortgages advanced to people buying a property, figures have shown.

Around 45,000 mortgages were lent for house purchase during the month, up from 36,000 in February, according to the Council of Mortgage Lenders.

The increase suggests the housing market is regaining momentum following a subdued start to the year due to the end of the stamp duty holiday and January's severe winter weather.

Lending for house purchase was 45% higher than it had been in March 2009, the ninth consecutive month of year-on-year growth.

But only 112,000 loans were advanced during the whole of the first quarter, down from 171,000 during the three months to the end of December.

However, the CML stressed that no trend could be inferred from this, as the figures were distorted by people rushing through transactions on lower value properties before the stamp duty holiday ended.

First-time buyer activity rebounded quicker than that for home movers during March, with 17,300 first-time buyers taking out a mortgage during the month, 27% more than in February.

A further 27,500 mortgages were taken out by former owner-occupiers, 24% up on the previous month's figure.

Overall, advances to all people purchasing a property totalled £6.3 billion during March.

Source: Press Association

Mortgage rates should not rise significantly as a result of the uncertainty caused by the hung parliament, commentators have said.

Mortgage rates should not rise significantly as a result of the uncertainty caused by the hung parliament, commentators have said.

Lenders were slow to respond to the result of the General Election, instead continuing to sit on their hands as they waited to see who would form the next government.

But despite steep slides to the FTSE 100 and value of the pound, as markets reacted to the uncertainty, there was only a slight rise in gilt yields, and swap rates - upon which fixed-rate mortgages are partially based - actually improved.

Gilt yields increased by only between four and nine basis-points, a change that is often seen during a normal day's trading.

And despite the fact that swap rates typically mirror changes to gilts, two-year swaps actual fell from 1.64% on Thursday to 1.6% on Friday, while five-year ones dropped by 0.05% to 2.84%.

There were also no reports of lenders pulling mortgage deals or raising their rates in response to the inconclusive election result.

Activity in the mortgage market has been subdued since the beginning of April as lenders waited for the outcome of Thursday's vote.

The average shelf life of a mortgage deal nearly doubled during the month to 30 days, while there were also 26% fewer product changes.

Ray Boulger, senior technical manager at John Charcol, said: "The movement (in gilt yields) is not sufficient to push mortgage rates up.

"As far as tracker rates are concerned, we still see no reason for the Bank of England to change rates in the short term."

Source: Press Association

Personal finance specialists may not be able to forecast the election result but they are sure about one thing: sooner rather than later, the next government will hit us all where it hurts - in the wallet.

Even before the new party (or parties) in power get round to any additional spending cuts, the outcome of election night could be a changing value of the pound, loss of some tax relief on pension contributions and even an unexpected rise in the cost of home loans.

Financial advisers seem especially spooked by the possibility of a hung parliament or a coalition - of whatever political combination.

"The problem with a hung parliament is that it produces uncertainty," says Melanie Bien, a director of Savills Private Finance.

"Money markets don't like this, so mortgage borrowing rates tend to rise as a result."

She suggests that anyone coming to the end of a mortgage deal who is worried about higher rates should be able to find a fixed rate for at least two years or more.

"Then, after the election result, they can decide whether or not they want to take out the fixed mortgage deal or not".

Source: BBC News