Newspaper article The Evening Standard (London, England)

One Glimmer of Sunshine ... Early Rise in Interest Rates Is Unlikely; Cheap Borrowing and Weak Pound Could Boost London Property Market

Newspaper article The Evening Standard (London, England)

One Glimmer of Sunshine ... Early Rise in Interest Rates Is Unlikely; Cheap Borrowing and Weak Pound Could Boost London Property Market

Article excerpt

Byline: Jonathan Prynn and Joe Murphy

THE shock reverse in the recovery spells a "death knell" for any early rise in interest rates, economists said today.

Some experts had warned that the cost of borrowing could start going up as early as next month, increasing the financial burden on millions of homeowners.

But Jonathan Loynes, chief European economist at forecasters Capital Economics, said any move to raise rates would now be "more than usually risky".

The 0.5 per cent fall in economic activity -- largely blamed on the coldest December on record -- is a stunning blow for a Government also fighting resurgent inflation, rising unemployment and a vast spending deficit. Officials said that even without the impact of the snow, GDP -- the measure of the size of the economy -- would have been flat in the last three months of last year. City forecasters had been expecting growth of between 0.2 and 0.6 per cent. George Osborne put a brave face on his worst setback since becoming Chancellor last May and pledged to stick to his plans to slash the deficit through public spending cuts.

Writing in today's Evening Standard, the Chancellor said any retreat from spending cuts would spark a collapse of confidence in the country's resolve to deal with the record deficit.

"There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather."

He said manufacturing had grown strongly, suggesting that the setback was mainly confined to those parts of the economy most affected by snow.

But shadow chancellor Ed Balls said the GDP reverse was "all the more worrying" because the impact of the January VAT rise was yet to feed into the official figures. …

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