Independent Item Club Sees Low Interest Rates As New Norm
For the economy to starve off near collapse, the Bank of England will have to maintain its base rate of 0.5 per cent for years, says independent Item Club.
Item Club is an independent economic forecasting group which uses the same computer model as the Treasury. Low levels of interest rates at any time is great news for lenders. People who are considering a mortgage for the first time or borrowers remortgaging will obviously benefit from this economic condition. The current rate of 0.5 per cent has been in place since March of 2009. "People ask when interest rates are going to normalise," said Professor Peter Spencer of York University and economic advisor to Item. "I tell them 0.5 per cent is the new norm." As a general comparison of keeping the base rate at 0.5 per cent versus raising it as early as next year, consumer spending is negatively affected through 2014, stifling growth. It is true that inflation would be higher if rates stayed low, but again raising rates next year would cause economic meltdown. Item said, "The bottom line is that if the Treasury can deliver cuts on the scale they are talking about, then the base rate will be staying on the floor for years and the market has failed to see that."