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CEBR says base rate stable at 0.5% until 2012

Following the emergency budget today, the centre for economics and business research predicts that interest rates will remain stable at 0.5% until the end of 2012.

Douglas McWIlliams, chief executive of cebr, says: “The chancellor noted Mervyn King’s remark at the Mansion House dinner last week that if growth was slower interest rates would be lower.

“We agree and – with our lower growth forecast we now think that base rates will be stable at 0.5% until the end of 2012 and the 10 year bond yield will fall to 3%. With base rates lower for longer, we also expect mortgage rates to fall from around 4% at present to 3% by early next year.”

He says unlike Gordon Brown, it appears that the main bad news was in the speech rather than being hidden in the small print, though a range of reviews announced in the budget may contain more tough decisions.

He adds: “We are much more bearish about the economy than the Office for Budget Responsibility and expect growth in the next three years to average 1% rather than their 2%.

“So we see the tough decisions in the Budget as putting the recovery more at risk. But even we do not see a double dip recession – though we see little growth in consumer spending in the next two years and think that it will be 2013 before we start to see a sustained export and investment boom.”

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