The economic slowdown, rising inflation, high rate of unemployment and many other factors have put the economists to think about the economic future of UK. Many economists are predicting that the current financial crisis may lead to the nation’s lending rate to be low and this phenomenon is likely to continue for years.
As per the economists of Ernst & Young, the Bank of England will keep the base lending rate low and this will continue until 2013. They have predicted that the interest rates could be as low as 0.5%. The main reason behind this change would be to control the rising inflation rate. The current inflation rate is 2%, which is because of the VAT Tax change. In the coming years, the inflation rate is expected to rise even further, in order to control it and keep it below 1% the lending rates may be kept low. The rates are expected to be low for a minimum of 2 to 3 years.
The low interest rate alone will not help. A lot depends on how the Government implements cost cutting measures without compromising on the necessary steps. Even if the actions taken are effective, to get the economy back to normal it will take a minimum of 2 years. If all this works out well then economists believe UK can overcome the economic slump. Investment from public and private sectors is expected to be huge once the recovery process ends.
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