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Base rate expected to rise in the spring

Base rate expected to rise in the spring

Category: Economy

Updated: 09/02/2011
First Published: 09/02/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The base rate of interest will not start to rise until the spring, according to the latest forecast from the UK's leading business organisation.

Although some voices have recently attempted to crank up the pressure on the Bank of England's Monetary Policy Committee to start raising interest rates this week, the Confederation of British Industry (CBI) says it does not expect any movement until April at the earliest.

The group believes that the Bank will start to 'normalise' monetary policy sometime in the second quarter of the year.

Interest rates are then expected to edge up gradually, and reach 2.75% by the fourth quarter of 2012.

Meanwhile, the CBI continues to forecast that the UK economy will grow in 2011, but at a slower pace than it previously thought.

The impact of December's bad weather means the business group now expects growth this year to be 1.8%, down slightly from its original prediction of 2.0%.

Its forecast for 2012 is for slightly faster growth of 2.3%, down from a forecast of 2.4% in December.

While admitting that a number of risks to the outlook remain, the CBI says the UK economy is still on the road to recovery, and maintains its view that the risk of a double-dip recession is low.

"The economic outlook remains subdued, and conditions for the consumer will be tough for some time to come," said Ian McCafferty, CBI chief economic adviser.

"But the economy will grow in the coming two years and, despite the recent shock of the estimate for GDP in the fourth quarter of 2010, we do not foresee a double-dip recession.

"What remains the case is that growth at this stage is far less robust than we would normally expect for the second and third year of an economic recovery.

"Persistently high levels of inflation, caused by rising energy and commodity prices and the VAT increase, are also a concern.

"This makes it more likely that the Bank of England will need to start putting up interest rates from their record low level from the second quarter of this year."

Check out shortly after midday tomorrow to see whether the Bank of England decides to increase the base rate sooner than the CBI predicts.

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