UK forecast to hold rates for five more years to fight slump

 
Tim Wallace
Follow Tim
THE BANK of England will have to keep printing money to stimulate the weak economy and will keep interest rates at 0.5 per cent or below until 2017, analysts at Citi warned yesterday.

And the UK is likely to lose its triple-A credit rating this year because the government is still adding to the national debt very rapidly, the researchers warn.

The private sector will keep paying down its debts rather than increasing borrowing and spending through this year, keeping a lid on British growth.

“It is more than five years since the financial crisis began, and the economy remains stuck in a liquidity trap, with persistent headwinds from private deleveraging, poor credit availability, fiscal policy and the Eurozone crisis,” said economist Michael Saunders.

“Even after colossal monetary easing, the level of real GDP in the third quarter of 2012 was still 2.9 per cent below the pre-crisis peak, with real GDP per head 6.2 per cent down — making this by far the worst recession / recovery cycle of recent decades.”

That could get worse with the economy potentially hitting a triple-dip recession. Growth is believed to have ground to a halt in the final three months of 2012, and continued deleveraging is forecast to continue for the years ahead.

“Real household disposable income per head is unchanged from the 2004 level, and surveys show that households remain gloomy on their financial prospects,” said Saunders.