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CBI believes UK base rates will rise later this year

The CBI has upgraded growth forecast for the UK economy in 2009 although there are concerns that any significant rise could prompt an increase in UK base rates. While this is inevitable at some stage, low base rates at this moment in time have the potential to assist companies and consumers in getting themselves out of significant financial trouble. If UK base rates were to rise we would then see a rise in interest rates in both the money markets and the bond markets which would then lead to increased finance costs for the future.

As many people expect, the CBI believes that the Bank of England will retain base rates at 0.5% until the quantitative easing program has been exhausted at which point we may well see rates start to creep higher. It'll be interesting to see the timing of such an increase in UK base rates as we approach the next general election. The next major decision which the UK authorities will have is not only when to increase base rates but how high to move them. Moving them too high too quickly could strangle any potential recovery in UK market while leaving base rates at 0.5% will obviously encourage inflation.

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