In an economic forecast by The Centre for Economics and Business Research (CEBR), it is predicted that UK interest rates will stay low for years with the base rate expected to remain at the current level of 0.5% until 2011 and to reach 2% no earlier than 2014.
The CEBR believes that the certainty of a squeeze on public finances would severely limit economic growth, meaning the Bank of England would need to keep rates low to make borrowing affordable.
The forecast assumes that the government will need to implement spending cuts and tax increases to the value of £100 billion pounds to reduce the budget deficit over the term of the next parliament. It is suggested that this will be achieved through spending cuts of £80 billion and tax rises to the value of £20 billion.
Commenting on the report findings Douglas McWilliams, CEBR chief executive and one of the report’s authors said: “We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward. Our analysis says that this ought to work.”
Last week the Bank of England’s Monetary Policy Committee (MPC) opted to hold the base rate at 0.5% for the seventh consecutive month. Great news for property owners and investors, especially those with tracker mortgage products.
