The Centre for Economics and Business Research (CEBR) released a report suggesting that interest rates in the UK will remain low for the next several years. The report also predicted that the pound could fall to US$1.40 while possibly tumbling below one euro within the next year.
The CEBR believes that the government will be forced to introduce a policy of decreased public spending combined with a series of tax hikes in order to balance the nation’s budget. This would hamper – for the short term at least – public growth and would force the Bank of England to maintain lower interest rates even as other countries begin to raise rates to hold back inflation.
“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 Douglas McWilliams, CEBR chief executive and one of the report’s authors.
“Our analysis says that this ought to work. If it does so, we are likely to see a major rerating of equities and property which in turn should stimulate economic growth after a lag.”
