'It would be wrong to raise interest rates this year'

THERE is no need for an interest rate rise this year, according to a senior economist who believes a case is growing in favour of pumping more money into the economy.

Graeme Leach, chief economist for the Institute of Directors, predicted the Bank of England would sanction an injection of 50 billion as early as August.

Briefing journalists in Edinburgh, Mr Leach agreed with the CBI's view that there should be no "Plan B" for economic recovery. Mr Leach said he was concerned about the weakness of the economy but said that it would be a mistake to raise rates.

Inflation would come down early next year but deflation - falling asset values - would require an expansion of the money supply.

He said the squeeze on household incomes and savings, together with weak jobs growth were depressing consumer and business demand.

Even so, he said Chancellor George Osborne should stick to his deficit-reduction policy.

"The IoD has strongly supported the government's spending review," said Mr Leach.

"We do not think there should be a 'Plan B'. There is a lot of evidence that you can combine a fiscal squeeze with economic expansion.

"The Bank of England should not raise interest rates. There is no case to do so. It would be a mistake and we are on the edge of making it."

He did not expect Britain to plunge into double dip recession, arguing that it would "scrape through" but said the Bank of England needed to hold its nerve on controlling inflation which would get worse before it got better. "We have to stick with Plan A and let business do the rest," he said.

Mr Leach also predicted that some members of the eurozone may eventually drop the euro.

"I do not see the euro having as many members in five years' time," he said.