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UK interest rates ‘could stay at 4.5%’

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24/07/2006

Forecasting group the Ernst & Young Item Club has concluded that the Bank of England has enough room to manoeuvre to let interest rates stay at 4.5%, with rising oil and commodity prices creating slack in the economy.

Increasing personal debt levels have also meant that consumers have cut back on their spending, so inflation is likely to slip back below the 2% level, which is the Government’s stated benchmark target.

Commenting on the effect of interest rates on manufacturing exports, chief economic adviser to the Item Club, Peter Spencer, said: “Until UK manufacturers manage to break out of the vicious circle of low profitability, low investment and a lack of cost control, the medium-term prospects for exports look poor.”

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