Interest Rates 'Will Stay At 0.5% Until 2014'

Sky News
"According to Ernst & Young's Item Club, the Bank of England's base rate will remain on hold at 0.5%, where it has been since March 2009, until 2014.Such a freeze would be welcomed by borrowers, who will enjoy lower mortgage and other loan repayments, but would be bad news for anyone who relies on an income from savings.Item says the low interest rate will be necessary to counterbalance slowing inflation as the Government's spending cuts come into force.Andrew Goodwin, senior economic advisor to the Item Club, told Sky News: "The VAT rise will keep inflation rates high in the short term, but come 2012 I would expect inflation to be well below the 2% target."Item believes this will happen as the effects of VAT and high energy prices wear off - and spare capacity in the economy affects firms' pricing decisions and employees' wages. "I think unless interest rates are pinned to the floor in the way they are now for the next three to four years, we'll see inflation get progressively lower," Mr Goodwin added."