LONDON (AFP) - The Bank of England will keep its key lending rate at a record-low 0.50 percent until at least 2011 as Britain recovers from a deep recession, an independent economics consultancy forecast on Monday.
The centre for economics and business research (cebr) added that British borrowing costs would remain below two percent up until 2014, in its latest quarterly 'United Kingdom Prospects' report.
"The forecasts show base rates of 0.5 percent to 2011 at least, remaining below 2.0 percent to 2014," it said.
"The forecasts are based on the assumption that the incoming government will need to take fiscal action of around 100 billion pounds in tax rises and spending cuts to correct the fiscal deficit.
"If -- as the bookmakers expect -- the new government is Conservative, the forecasts suggest tax rises of 20 billion pounds and spending cuts of 80 billion pounds," added the consultancy.
The opposition Conservatives are widely expected to defeat the ruling Labour Party at a British general election due by mid-2010.
The Bank of England (BoE) last week kept its key interest rate at a record low 0.5 percent amid signs of improvement for the recession-hit British economy.
It also agreed to continue its quantitative easing (QE) programme to pump out 175 billion pounds (194 billion euros, 287 billion dollars) of new money.
The cebr on Monday predicted that the BoE would eventually increase QE by an extra 75 billion pounds by "purchasing a wider range of assets than hitherto."
Under QE, the BoE creates money by buying bonds from commercial institutions in the hope of boosting lending in the economy.
On Monday, the cebr also forecast further weakness for Britain's currency, with the pound set to fall to 1.40 dollars and possibly below 1.00 euro.
The British central bank in March slashed borrowing costs to the current record-low level and embarked on a radical QE policy in an attempt to lift Britain out of recession.
Britain's economy shrank by 0.6 percent in the second quarter compared with activity in the first three months of 2009, which was better than the previous estimate of minus 0.7 percent, according to recent official data.
That was the second upgrade to the forecast since July -- but it was still the fifth quarterly contraction in a row amid soaring unemployment levels.
