What's in store for interest rates in 2011?

Interest rates have been at a historic low for 20 months now, so are Brits likely to see an increase in 2011?

The Bank of England's Monetary Policy Committee (MPC) last week took the decision to maintain its base rate of interest at 0.5 per cent - a historic low - for the 20th month in a row.

This means Brits have now have been living with the impact of such low interest rates, which mean low repayments for those with certain mortgage products, but also lower returns on savings, since March 2009.

But, the Bank's decision is likely to have come as little surprise to analysts.

A poll of 64 leading economists conducted by Reuters earlier in the week found one called for an increase of a quarter of a percentage point in the rate, but the overwhelming majority believed the 0.5 per cent rate would stand.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said prior to the decision: "We think it will be very much a surprise if anything happened at the meeting. We are expecting rates to be on hold this week and also further into the future."

The question on many people's lips is how much further in the future.

Experts seem to be having trouble reaching a consensus on the issue, with predictions ranging from a matter of months to several years.

According to the poll by Reuters, many believe the interest rates are set to stay at 0.5 per cent until at least next October.

The figures change fairly regularly between the polls, but recently no more than ten of the 60-odd experts believe the UK will see an interest rate increase before June 2011.

Predictions from the experts were that by the end of next year, interest rates will have risen by 0.25 of a percentage point, to 0.75 per cent, before increasing further to one per cent in the first three months of 2012.

Looking at the furthest prediction, those polled expected interest rates would hit 1.5 per cent by June of 2012.

Philip Shaw of Investec bank told City AM: "I expect that we will begin to see rates go up in next year’s fourth quarter. It is likely that we will see evidence of a self-sustaining recovery, so the need for interest rates at very low emergency levels will fade."

In contrast to this, Simon Ward, of Henderson Global Investors, told the news provider: "I have a 0.25 per cent rates hike pencilled in for March, and expect rates to have hit two per cent rate by the end of 2011."

The Ernst and Young ITEM club believes the UK will see very low rates for "several years" as part of the Bank's continuing efforts to keep the British economy travelling in the right direction.

Mr Goodwin explained: "The key is that because the fiscal policy tightening is going to be so severe over the next three or four years, the MPC is going to have to keep monetary policy pretty loose to try and offset the dampening effects of the tightening policy."

Looking at the abstract figures, it is perhaps difficult for consumers to see how and increase in interest rates would affect them. If interest rates were to rise, Brits would likely see an increase in their mortgage payments, although savings accounts should also increase their interest rates.

The full details of the meeting and the debate which took place between the members of the MPC are not set to be released until later this month.

Of the nine members of the committee, Andrew Sentance is the one who has been calling for an increase over recent months, and experts are predicting when the minutes are released they will show he did the same again.