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Interest rates predicted to stay low

The Bank of England looks set to keep interest rates at a record low today - and probably well into next year - to keep the recovery on track in the face of austerity measures and a weakening U.S. economy.

News agency Reuters reports that despite above-target inflation, the central bank has taken a distinctly dovish stance and indicated it is just as likely to push harder on the monetary accelerator as it is to ease off.

In practice this would mean restarting its quantitative easing scheme and buying more assets with newly-created money.

"Given various jitters in the global economy, any move in the short term would be an expansion of quantitative easing, rather than an increase in rates," said Philip Shaw, chief economist at Investec.

All 60 economists in a Reuters poll reckon the central bank will keep borrowing costs at 0.5 percent for the 18th month running when the Monetary Policy Committee concludes its two-day meeting on Thursday, and most see no move up until the second quarter of 2011 at the earliest.

The economy grew a robust 1.2% in the three months to June, but private sector surveys are pointing to a slowdown to less than half this rate in the third quarter.

Looming government spending cuts have knocked confidence even before they have taken effect. House prices have stalled since the start of the year and firms have become more cautious about taking on new workers.

 

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