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August 20, 2009    

Historically low interest rates to stay for years, predicts top economist

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by Kay Murchie

Gerard Lyons, chief economist at Standard Chartered Bank, is predicting that interest rates could remain at historically low levels for many years to come.

Interest rates currently stand at 0.5% - the lowest level since the Bank of England was established over 300 years ago.

According to Mr Lyons, it is quite likely that the Bank of England’s Governor, Mervyn King, will not increase rates during his remaining tenure as Governor - which lasts until mid-2013.

Furthermore, many other economists believe that interest rates will need to be kept at low levels in order to keep the economy moving, particularly as spending will have to be cut and taxes increased.

His predictions come as the minutes of the Bank of England’s August meeting have been released and revealed that Mr King wanted to inject more cash into the economy but was outvoted by fellow policymakers.

Quantitative easing (QE) also known as printing money, is a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

The majority of policymakers voted to expand the QE programme by £50 billion to £175 billion but Mr King, along with Tim Besley and David Miles, voted for a larger cash injection of £75 billion.

The three of them voted for a bigger increase arguing that “insufficient stimulatory monetary policy” could harm the UK’s economic recovery.

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