12
Oct
UK rates 'to stay low for years'
UK interest rates will stay low for years amid tax rises and
spending cuts, according to an economic forecast.
The Centre for Economics and Business Research (CEBR) believes
the rate will remain at its current 0.5% level until 2011 and not
reach 2% until 2014.
The report predicted the pound will weaken further, falling to
$1.40 and "possibly" below 1 euro.
Its forecast is based on the government managing to slash the UK
budget deficit by £100bn over the next parliament.
It says that about £80bn of this would come from spending
cuts, and a further £20bn from tax rises.
'Policy mix'
Such a squeeze on public finances would severely limit economic
growth, meaning the Bank of England had to keep rates low to make
borrowing money affordable, the CEBR argues.
"We are likely to see an exciting policy mix, with the fiscal
policy lever pulled right back while the monetary lever is fast
forward," said Douglas McWilliams, CEBR chief executive and one of
the report's authors.
"Our analysis says that this ought to work. If it does so, we
are likely to see a major rerating of equities and property which
in turn should stimulate economic growth after a lag."
Last week the Bank of England held interest rates at a record
low of 0.5% for the seventh consecutive month.
The CEBR added that the Bank programme to increase the amount of
money in the economy - so-called quantitative easing - would
increase by £75bn from the £175bn so far announced.
And it predicted that the UK economy would grow by 1.3% in 2010
- having shrunk by 4.3% this year.
source: www.bbc.co.uk/news Monday 12th
October 2009