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Economic recovery 'will not be swift'

Interest rates will remain at a historic low for longer than expected after the Bank of England today warned of a “slow and protracted” economic recovery.

The Bank forecast that the inflation benchmark used by rate-setters would stay below its 2% target for a long time if rates follow market expectations and begin to rise next year.

Even if the cost of borrowing remains at 0.5% the Bank is not forecast to hit target until the middle of 2011.

The Bank admitted the scale of the recession was worse than it had expected just three months ago, although it said the pace of contraction had slowed and stronger results from business surveys “suggested that the trough in output was near”.

It said its £175 billion quantitative easing (QE) scheme would help facilitate a slow upturn but warned that “the timing and strength of that recovery remains highly uncertain”.

The quarterly inflation report showed that if rates rose with market expectations - to around 2% by the end of 2010 and nearly 4% by the end of 2011 - inflation would be just 1.5% in two years’ time.

This was posted in Bdaily's Members' News section by Ruth Mitchell .