UK Interest Rates to Rise in First Quarter 2015 as UK Economy Strengthens, Says Goldman Sachs

Goldman Sachs predicts that interest rates will rise in the first three months of 2015 as it revised up its forecast for the UK economy to 3.4% for 2014.

The Wall Street giant upwardly revised its forecast after citing "support from the ongoing recuperation of the banking system."

"The upward revisions reflect the persisent strength displayed by UK activity indicators.

"Over time, we think the UK is likely to resume its previous pattern of slow convergence towards US productivity levels, implying upside risks to our medium-term productivity forecasts," it added.

Goldman Sachs also said in its note that more Britons will find jobs this year as there will be a 2.5% rise in employment for 2014.

Furthermore, it downwardly revised its jobless rate forecasts to 6.5%, from 6.8% for this year.

Overall, it said that Britons should expect interest rates to rise from record lows of 0.5% on positive data and on the "recent 'hawkish' shift in the communication of a number of Monetary Policy Committee (MPC) members".

Previously, Goldman Sachs forecasted rates to rise in the third quarter of next year.

Recently, the governor of the Bank of England said that the UK economic recovery is becoming more balanced, signalling a sooner-than-expected rise in interest rates.

"There are signs of more balance in the recovery than previously," said Mark Carney at a Treasury Select Committee (TSC) hearing.

According to the central bank's forecasts, the UK economy will grow by around 3% in 2014. Though primarily driven by household consumption and a revival in housing market activity, Carney said an increasingly larger portion of growth is accounted for by business investment – around a quarter.

Meanwhile, a senior Bank of England official claimed that the central bank may have to raise interest rates sooner than previously expected as it underestimated the amount of room in the UK's labour market to create jobs and recovering productivity levels.