5% rate predicted to last the year

A leading economist forecasts that the UK's base rate of interest will remain fixed at five per cent until 2009.

Ross Walker, an economist at the Royal Bank of Scotland predicts that the Bank of England's monetary policy committee (MPC) will adopt a wait and see approach to the economy.

With inflation rising sharply, high energy and food prices and an economic downturn, Mr Walker believes that the MPC will keep rates on hold until the end of 2008 and make quarter point cuts during the first and second quarters of next year.

Forecasting "no change" for interest rates this month, he says: "I think the MPC is stuck like the proverbial rabbit in the head lights: it can't raise rates because the real economy is weakening very sharply and it can't cut rates because inflation is going higher".

The MPC is due to announce its monthly interest rate decision on July 10th following its two-day rate-setting meeting.