Interest rates could stay close to 0% for a long time, if the recession continues to worse and unemployment rises. The latest inflation forecast suggested CPI inflation will fall below the government’s target and stay around 1%. Since this rate is below the governments target this will keep interest rates low.
However, despite the magnitude of the recession, government policies mean inflation could return in a couple of months. If it did interest rates would rise.
Inflationary policies include
- Large depreciation in the Pound
- QUantitative easing (increasing money supply)
- Budget deficit of 12% of GDP
See also: Interest Rate predictions