By Lesley Foottit - 12th October 2009
Interest rates will stay at rock bottom for years to come, the Centre for Economics and Business Research has predicted.
A report, published Monday, reveals how far there is to go in the government's battle to fix the UK economy.
The cost of borrowing is set to remain at its record low of 0.5 per cent until at least 2011 and will not rise above two per cent for a further three years, according to the study.
A weaker pound in also expected, possibly slumping to $1.40 and at risk of further falls against the euro.
The report predicts that the next government will have to pull in around £100bn from tax rises and spending cuts in order to bring the budget deficit down to £50bn by the 2014/15 financial year.
And the CEBR warns that without action the deficit will stand at £143bn in that year.
The report also predicts the Bank of England's monetary policy committee will increase its quantitative easing programme by another £75bn, despite voting against it this month.
The printing of further money is expected as Bank governor Mervyn King and two other MPC members have argued for a £75bn boost to the scheme.
CEBR chief executive Douglas McWilliams said: "We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward.
"Our analysis says that this ought to work. If it does so, we are likely to see a major re-rating of equities and property which in turn should stimulate economic growth after a lag."
UK economic growth between 2009 and 2014 is expected to average 1.4 per cent, although budget cuts will cause the figures to dip in 2011 and 2012, according to the CEBR.
Following that, the weak pound and low interest rates are expected to encourage investment, halting the trend for savings and boosting exports.
Dods Parliamentary Communications Ltd