Weak momentum in the economic recovery means interest rates are unlikely to rise until 2013, according to Deloitte economic adviser Roger Bootle.
Once an adviser to the Treasury, in his latest quarterly review Bootle says the UK has “turned a corner” in the recovery but falling incomes, expected inflation this year of 5 per cent and government cuts will mean a “sluggish” recovery.
Quoted on Bloomberg, Bootle says: “The underlying momentum of the economic recovery looks pretty weak. My central forecast is still that rates remain on hold throughout this year and next.”
CPI inflation currently stands at 4 per cent, twice the Bank of England’s target, with the Monetary Policy Committee meeting this week.
According to minutes released last month the nine member Monetary Policy Committee is split 6-3 against raising rates with eight members voting to keep the Bank’s programme of quantitative easing at £200bn.
Bootle says: “It is not out of the question the MPC will eventually need to give more support to the economy. But additional asset purchases, if they do come, are perhaps unlikely until 2012.”
MPC external member Andrew Sentance has been calling for a rate rise of 0.5 per cent and last week he said the MPC’s credibility may already have been undermined by not raising rates soon enough to tackle inflation.
Bootle adds that this year he expects inflation to average 4.4 per cent before falling to 1.8 per cent in 2012.