8:33 AM, 5th May 2011, About 12 years ago 14
The Bank of England interest rate may hover around 0.5% for at least another two years because of a weak economy and overwhelming personal debt.
Bank governor Mervyn King has hit out at interest rise hawks speculating that rates must soon go up in a speech to a finance committee at the European Parliament.
His view is too much borrowed money is sloshing around in the economy and raising interest rates would push too many people and businesses in to bankruptcy – and he sees the problem persisting for some years.
“The economic consequences of high-level indebtedness now would become more severe if rates were to rise,” said King.
“It is the main reason why interest rates are so low.”
“The sheer volume of debt in the economy is still very large and this poses massive macro-economic challenges that will last many years.”
Former Treasury adviser Roger Bootle backs Mr. King on a state of the nation report for auditor Deloitte and Touche.
“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,” he said.
Mr. Bootle also predicts the Bank of England may consider more quantitative easing to bolster the economy.
His report suggests inflation will remain between 4% – 5% for the rest of the year before dropping back to the Bank of England target of 2% sometime in 2012.
The Bank of England monetary policy committee, chaired by Mr. King, meets again on Thursday to set interest rates for May. The rate is expected to remain unchanged, according to forecasts from 43 economists and city analysts polled by financial news provider Bloomberg.
Committee members are not unanimous in their support of Mr. King, with Andrew Sentance having argued for some months that interest rates should rise to tackle inflation.