Belfast Telegraph

Interest rates must remain low, warns think-tank

By James Tappfield

The Organisation for Economic Co-operation and Development (OECD) has warned that Britain must keep interest rates low to maintain its recovery - even if that means high inflation.

The influential think-tank again praised the coalition's drive to tackle the deficit, saying tough measures were "vital" in the wake of the credit crunch. However, it said there were "significant headwinds" for UK plc as spending cuts bite and global trade remains in the doldrums.

The assessment, in the OECD's latest UK Economic Survey, comes despite calls for the Bank of England to increase interest rates to bring inflation back to 2%.

"The UK economy emerged from the 2008-09 recession with elevated public and private debt and high unemployment," the report said.

"Strong growth and macroeconomic stability in the run-up to the crisis had hidden a build-up of significant imbalances, influenced by overreliance on debt-finance and the financial sector, and booming asset prices.

"These imbalances need to be addressed to ensure a sustainable and balanced recovery. The Government is pursuing a necessary and wide ranging programme of fiscal consolidation and structural reforms aimed at achieving stronger growth and a rebalancing of the economy.

"A broad based recovery started at the end of 2009, but faces significant headwinds during 2011, which can be mitigated by monetary policy remaining supportive."