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Call for base rate to remain low as economy stalls

Call for base rate to remain low as economy stalls

Category: Economy

Updated: 26/08/2011
First Published: 26/08/2011

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 It is now over 6 months old so the content may be out of date.

Experts have suggested interest rates must stay low for an extended period of time after one-off factors threw the brakes on the economic recovery.

According to the second estimate of growth from the Office for National Statistics (ONS), UK output grew by 0.2% in the second quarter of the year.

The ONS decided to stand by its initial estimate for the period April to June, meaning growth has slowed from the 0.5% seen between January and March.

Attempting to explain the weak growth, the ONS noted that a number of 'special events' occurred during the months in question which might have impacted on the figures.

The additional bank holiday for the royal wedding, the wedding itself and the after-effects of the Japanese tsunami were amongst the factors highlighted as likely to have had a negative effect on GDP.

At the same time, however, the first phase of Olympic ticket sales and the record warm weather in April could potentially have had a positive influence on the data.

While admitting difficult times lay ahead for the UK economy, David Kern, chief economist at the British Chambers of Commerce, said there was no need for undue pessimism.

"Economic growth remains in positive territory and other nations face the same challenges," he explained.

"For example, Germany grew by only 0.1% in the second quarter while the French economy was stagnant."

Based on the data, Mr Kern called on the Government to persevere with its deficit-cutting plan aimed at stabilising public finances.

However, warning against complacency, he added that every effort must be made to avoid an economic setback.

"The Bank of England should maintain low interest rates for an extended period and consider increasing the QE programme if there are further signs of weakness," he added.

"On its part, the Government should explore more policies to help boost growth, such as reducing regulatory burdens which prevent businesses from creating jobs and wealth."

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