Ernst & Young’s ITEM Club have predicted that the Bank of England will not begin to raise interest rates from the current rate of 0.5% until the year 2014 in order to offset the Government’s recent austerity cuts. The Bank of England’s £200bn quantitative easing programme may have to be restarted.
The conjecture by ITEM contradicts that of the Government’s forecasters who have predicted that interest rates will begin to increase next year. Pressure has intensified on the early rise of interest rates by the data released by the Office of National Statistics which asserts that in the 3 months leading up to June, the economy grew by 1.1%.
ITEM’s prediction will definitely prove to be beneficial for long-term growth as the economy will augment by 2.9% and consumer spending by 2.3%. If interest rates increase prematurely next year the economy will only grow by 2% and consumer spending will only go up by 1.8%.
VAT increases will ensure that inflation will remain above target until the end of 2011 and it is speculated that house prices will cease to rise.