Britain will not see interest rates start to rise until 2013, despite suffering the “most pronounced inflation problem” of any advanced economy, according to leading economists.

The pace of price rises should soon hit its highest level in two decades, at 6pc on the retail prices index (RPI), said the team at BNP Paribas.
However, the problems facing the recovery mean the Bank of England will achieve little by raising rates from their record 0.5pc low in a bid to rein in the pace of price rises, they argued.

“We do not believe the Bank of England will raise rates this year or next,” said Paul Mortimer-Lee, global head of market economics at BNP Paribas. “There is no point in hiking rates to slow the economy — it’s too slow already and fiscal consolidation will stop it from overheating.

“The only reason for a rate hike is to keep inflation expectations and wage rises down. [But] unemployment is already subduing wages.”

Mr Mortimer-Lee holds that one-off shocks — rises in the global cost of oil and food, a fall in the pound and the recent rise in VAT — explain away much of the UK’s inflation problem. That should mean CPI inflation will fall quickly next year as these factors ebb away, ending 2012 around the 2pc....Read more HERE on this story