Low interest rates could be with us for some time, according to The Bank of England Inflation Report, published yesterday.

The Centre for Economics and Business Research (CEBR) said the reality of a deep recession and sluggish recovery has dawned upon the MPC, recognising that insipid growth and downward pressure on prices is the greater concern.

The Bank’s central expectation is for inflation to dip below 1.0 per cent and the CEBR said this implies that on the current scale of quantitative easing and market expectations on interest rates inflation will continue to undershoot the 2.0 per cent target through to 2013.

The CEBR said: “This implies three things. First, more quantitative easing is on the cards – our rough and ready estimate is a further GBP 50 billion. Second, the Bank is clearly not expecting to roll back the QE at all soon. Third, interest rates are likely to remain lower for longer than the markets expect, even predicting Bank Rate will stay at 0.5 per cent until the end of 2011.The more bearish medium term growth projections than those incorporated in the Budget imply a much larger fiscal deficit than the Chancellor has admitted to.

The Bank warns that stabilising the ratio of debt to GDP ‘will require some combination of lower government spending and higher taxes, as a share of GDP.’

Posted 29/08/2009 13:38:26