Interest rates could rise substantially to 8% within two years to stave off soaring inflation, new research suggests.
Andrew Lilico, chief economist at the Policy Exchange, warns interest rates could go back to levels last seen in the 1990s, The Telegraph reports.
Lilico also warned of a return to "boom and bust", as ballooning inflation threatens to tip the economy back in to recession in 2013 or 2014.
"Given the constraints of late 2008 and the absurdities of subsequent fiscal, finance and regulatory policy, if we can get away with a recession of only 6.6%, deflation of only 2% and inflation of only 10% for one year, Mervyn King will deserve a medal," Lilico said.
As a result of the Bank of England's £200bn QE programme, Lilico estimates the Retail Prices Index inflation would rise "above 10%". The Consumer Prices Index will top 6%.
"I believe that this will be the combined result of natural recovery-driven growth and massive and unsustainable investment driven by huge monetary growth," he adds.
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