The Bank of England bank rate is unlikely to rise until 2013 due to a weak economic recovery, according to Deloitte economic adviser Roger Bootle.
Bootle, who was once an adviser to the Treasury, says in his latest quarterly review that interest rates “should stay low for a long time”.
He says: “The economic recovery does not yet look strong enough to justify tighter monetary policy. We think that the markets are premature in exp-ecting rates to rise next year.”
Bank rate has been at a record low of 0.5 per cent since March 2009.
Bootle’s comments come after some commentators, including MPC external member Andrew Sentance, said the committee has lost credibility by not raising interest rates to meet its 2 per cent inflation target.
Inflation currently stands at 4 per cent. The latest MPC minutes show a 6-3 vote against raising rates.
Bank of England governor Mervyn King has warned European ministers of the “severe” consequences of raising interest rates.
Speaking at the European Parliament earlier this week, he said: “The economic consequences of high-level indebtedness now would become more severe if rates were to rise.”
Bootle believes the BoE could introduce additional quantitative easing in the near future.
He says: “The economic recovery would have to collapse quickly for our long-held forecast of an additional £50bn of asset purchases in February to prove right. But we still think that additional asset purchases could come in the first half of 2011.”
First Action Finance head of communications Jonathan Cornell says: “Rate rises will depend on how fragile the economy is and how quickly inflation starts to come down. The economy will start to heal itself and we will probably see rises towards the end of the year.”