Interest Rate Rise Unlikely Until 2011
Interest rates are likely to remain unchanged for the next two years and may stay below two% until 2014, the Centre for Economics and Business Research (CEBR) has predicted.
The CEBR has forecast that UK interest rates are likely to stay at 0.5% until 2011, as the Government seeks to stimulate the economy by making lending more attractive to borrowers.
In addition, the research group predicted that the pound would weaken further as rates remain low, slumping to $1.40 and possibly falling to parity with the euro.
The CEBR also expects future tax rises and spending cuts in order for the next Government to cope with the UK’s budget deficit. It would need to generate about £100 billion to get back on track. Around £80 billion would come from spending cuts, it said, while £20 billion would be engineered from tax increases.
“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 CEBR chief executive, Douglas McWilliams.
CEBR economist, Benjamin Williamson, said the extension of low base rates is likely to mean easier credit access and more relaxed lending criteria for small businesses.
“Small firms should find it less difficult to secure credit over the next two years,” he said. “A weaker pound is also good news for firms exporting overseas, and we are likely to see a recovery in the UK export market next year.”
A Federation of Small Business spokesperson said that small firms were already benefiting from “affordable and stable” borrowing levels, which were beneficial for those struggling in the recession.
“We know that a third of our members are still having problems getting hold of credit, but anecdotal evidence shows that borrowing is getting easier,” he added.
Other predictions in the report included the likely expansion of the Bank of England’s quantitative easing programme — in other words, its cash injection into the economy — by another £75 billion to £250 billion.
The research group also expects UK economic growth to average 1.4% between now and 2014, while predicting that heavy budget cuts to improve the country’s finances will cause a dip in 2011 and 2012.