Interest rates ‘may not rise for two years’

It could be two years before interest rates are increased, an economist has said.

UK economist at BNP Paribas Alan Clarke predicted that tax rises and the general election could mitigate against such action in 2010, while slow economic growth could ensure that there is still a base rate of 0.5 per cent through 2011.

Mr Clarke said: “The Bank of England knows that fiscal policy tightening is coming, so they are not going to tighten interest rates ahead of it being announced.”

The economy will go through a “soft patch” in 2011 that will see both growth and inflation at very low levels, he forecasted, noting that this would also not be a favourable time to change monetary policy.

If rates do stay low, those looking to take out savings accounts may wish to shop around extensively for the best-paying product.

Earlier this week, the Confederation of British Industry said the economy should exit recession in the last three months of this year, but will only see 1.2 per cent growth in 2010.

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