Interest rates 'set to stay low'

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The cost of borrowing is to remain at its record low of 0.5% until at least 2011 and remain below 2% until 2014, according to a study by the Centre for Economics and Business Research (CEBR).

A weaker pound - slumping to just 1.40 US dollars and possibly falling below parity with the euro - is also expected.

The CEBR predicts the next government will have to engineer around £100 billion in tax rises and spending cuts to deal with the country's deficit.

Political parties are already vying to explain how they plan to address the dire public finances after next year's general election.

The report forecasts that should the Conservatives win power this will mean £20 billion in extra taxes with an £80 billion reduction in spending.

A future government will have to wrestle the budget deficit down to £50 billion by the 2014/15 financial year, a tough challenge as the CEBR also warns that the deficit will be £143 billion in that year without action.

The report also predicts the Bank of England will increase its quantitative easing (QE) programme - essentially printing money - by another £75 billion.

This month the Bank voted to not to increase its programme to boost the money supply from its current £175 billion.

But further QE is expected, not least because governor Mervyn King and two other committee members have already argued for a £75 billion boost to the scheme.