Bank 'to keep rates low'

Date: 12th October 2009

The Bank of England is likely to keep rates at their present level of 0.5 per cent for more than a year, in news that could benefit credit flows to businesses.

Analysis from independent experts at the Centre for Economics and Business Research (CEBR) suggests that the base rate will only be raised in 2011.

Moreover, the report also found that rates were likely to stay below two per cent until 2014 at the earliest.

Bank policymakers have slashed lending rates to their lowest-ever level in a bid to improve credit conditions for consumers and businesses.

These moves were made due to the financial pressures caused by the global credit crunch, in which inter-bank lending, and therefore lending on the high street, largely dried up.

The CEBR also predicted a scaling-back of government spending over the years to come.

This is due to the large debts run up in the credit crunch and recession, with declining revenues from VAT and corporation tax helping the public balance sheet to move a forecast £175 billion into the red this year.

Douglas McWilliams, CEBR chief executive, commented: "We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward."

The Bank cut the base rate to its current level of 0.5 per cent in March 2009.