Rates may stay at 0.5 percent until 2011

Interest rates will stay at 0.5 percent until 2011 and will not rise to 2 percent until 2014, the Centre for Economics and Business Research (CEBR) said on Monday.

The consultancy said in a report on the outlook for the economy that the pound could fall to $1.40 and possibly below parity with the euro as rates remain low, and the government raises taxes and cuts spending to reduce its budget deficit.

The report's forecasts assume the next government, which opinion polls suggest will be run by the Conservative Party, will need to cut the budget deficit to 50 billion pounds by 2014/15. Without action, the forecasts predicted a deficit of 143 billion pounds in that year, it said.

The CEBR forecasts GDP will contract by 4.3 percent this year, before expanding by 1.3 percent in 2010 and by 0.8 percent in 2011.