Interest Rates to go up Monday, 21st December 2009

Ian McCafferty, CBI chief economic adviser, said: " The UK Bank rate is forecast to start rising in spring 2010, as the Bank of England withdraws some of the monetary stimulus in order to minimise the risk of undesirable inflationary pressure in the medium term. The Bank rate is expected to reach 2% by the end of next year, with no further rises during 2011, to assist the sustainability of the recovery as fiscal policy begins to tighten."

The CBI said tomorrow, The UK economy is expected to exit the recession in the fourth quarter of 2009, but thereafter growth will remain subdued and GDP is unlikely to have reached pre-recession levels by the end of 2011,

Its latest economic forecast predicts that the recession will end when UK growth resumes in the fourth quarter of this year (0.5% quarter-on-quarter), helped by consumers bringing their spending forward to beat the VAT rise.

Subsequent growth in the first two quarters of 2010 will be weak at 0.3%, but this should strengthen as the global economic recovery gathers pace, businesses rebuild stocks and household spending recovers. Growth in the range of 0.5% to 0.7% is expected to be maintained through to the end of 2011, according to the CBI.

As a result, the CBI predicts annual UK GDP growth of 2.5% in 2011, following 1.2% in 2010. However, despite two years of economic expansion, UK GDP will still not have returned to its pre-recession level by the end of 2011, which illustrates the depth of the recession and the weakness of the economic recovery.

John Cridland, CBI deputy director-general, said: "The outlook is brightening as the global economy finds its feet, although we will need to keep our nerve during early 2010, and there is no sign of a clear driver of strong economic growth. In the spring many staff will face another cycle of wage freezes, and job losses will continue rising until the autumn.

"Although the first few months of 2010 will be difficult, growth will gradually pick up and increasing confidence and demand will lead the UK into a more positive 2011. Consumer spending looks to be slightly more resilient than we first thought, and a weaker pound will help to support export growth.

"However, the economy will be on a fragile path of very slow growth, as we continue to feel the lasting effects of the financial crisis. And it remains vital that government sets out clearer plans to address the fiscal deficit at its next opportunity in order to help shore up future UK economic prospects."