UK base rates to remain at 0.5%
Ernst & Young recently issued a report in which it forecast that UK base rates would remain at 0.5% for one and a half years, and the UK recession could potentially last longer than many people think. The well respected economic think tank also believes there is a significant danger of a double dip recession during which high hopes for a quick rebound are foiled and the economy moves back into a downward spiral.
While there is much debate as to whether the UK recession will rebound quickly in 2010 or suffer a further downfall, we are quickly approaching a critical point in the potential recovery of the UK economy. The year 2009 is seen by many as a potential turning point although if these hopes are dashed towards the end of the year then we could see a sudden downturn in UK consumer confidence. This would in turn lead to a reduction in consumer spending, lower prices, potential deflation and more worries for the UK money markets.
The truth is that nobody can accurately forecast how the UK economy will react to various ongoing issues. We have the recession itself, we have swine flu, we have the election and there is much speculation as to the make-up of the future regulatory environment for the financial markets. These are very testing times for the UK economy.
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