Partner Article

Interest rates 'will remain low'

Interest rates will stay at rock bottom in the years to come as the Government tackles the UK’s wounded economy, a report out today has predicted.

The cost of borrowing is to remain at its record low of 0.5% until at least 2011 and remain below 2% until 2014, according to a study by the Centre for Economics and Business Research (CEBR).

A weaker pound - slumping to just 1.40 US dollars and possibly falling below parity with the euro - is also expected.

The CEBR predicts the next government will have to engineer around £100 billion in tax rises and spending cuts to deal with the country’s deficit.

Political parties are already vying to explain how they plan to address the dire public finances after next year’s general election.

The report forecasts that should the Conservatives win power this will mean £20 billion in extra taxes with an £80 billion reduction in spending.

A future government will have to wrestle the budget deficit down to £50 billion by the 2014/15 financial year, a tough challenge as the CEBR also warns that the deficit will be £143 billion in that year without action.

CEBR chief executive Douglas McWilliams 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. If it does so, we are likely to see a major re-rating of equities and property which in turn should stimulate economic growth after a lag.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .