The 0.5% base rate is forecast to be maintained until 2011.

The base rate of 0.5% is forecast to remain until 2011, and then not rise above 2% until 2014, according to leading think tank the centre for economics and business research (cebr).

In its United Kingdom prospects report published today, cebr forecasts a period of fiscal consolidation – a policy aimed at reducing government deficits and debt accumulation – which is likely to be matched with an unprecedented monetary relaxation.

The forecasts show a continued base rate of 0.5% to 2011 at least, remaining below 2% to 2014. They also show an additional £75 billion of Quantitative Easing (QE) – essentially the act of printing money, despite the announcement this month that the level of QE would remain at £175bn.

They indicate a sharp fall in the long bond yield to 2.8% by 2011 and 2.5% by 2013 and a weaker pound, falling to $1.40 and possibly below €1.00 (depending on whether the markets get worried about the long term sustainability of the euro).

The forecasts are based on the assumption that the incoming government will need to take fiscal action of around £100 billion to correct the fiscal deficit – this is predicted to be tax rises of £20 billion and spending cuts of £80 billion with a Conservative government.

This assumes that the government will get the budget deficit down to £50 billion by 2014/15 – without fiscal action there would be a deficit of £143 billion in that year.

Douglas McWilliams, one of the report’s authors and Chief Executive at cebr, said: “We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward. Our analysis says that this ought to work. If it does so, we are likely to see a major rerating of equities and property which in turn should stimulate economic growth after a lag.”

The cebr forecasts are for GDP growth of -4.3% in 2009; 1.3% in 2010; 0.8% in 2011, 1.0% in 2012; 1.5% in 2013 and 2.3% in 2014.