Interest rates 'to be low'

Date: 23rd December 2009

The Bank of England is unlikely to raise interest rates in 2010, an economist has claimed.

Alan Clarke of BNP Paribas explained that difficult economic conditions will lead the Monetary Policy Committee to keep interest rates on hold.

Currently, the interest rate stands at a historic low of 0.5 per cent, which the Bank set in March following five consecutive months of cuts.

Mr Clarke said that this all-time low is not likely to be raised in the near future as he does not expect the rate to be raised in the months before a general election next summer.

"The Bank of England knows that fiscal policy tightening is coming, so they are not going to tighten interest rates ahead of it being announced. They are not going to tighten interest rates around the time of the election," he explained.

"Straight after that election when the tightening is likely to be announced, they are not going to start tightening interest rates then, because the government is doing it for them by raising taxes and cutting down on spending."

The comments come a day after latest data from the Office for National Statistics revealed that the UK is still in recession, with a 0.2 per cent decline in GDP in the third quarter of the year.