Gerri Peev: Brown must bank on long term rate rise

ON a regional tour this week of just about everywhere except Scotland, the PM has said he is “determined during this period of time that inflation is low, interest rates will be low and that’s the best way of stimulating the economy.”

Leaving aside the fact that investors are scared away by low rates, the PM has to be careful not to promise too much on the interest rate front from an independent Bank of England.

More importantly, one only has to look across the pond to read the runes (or should that be ruins) to see that rates could go up perhaps sooner that many would like.

The Congressional Budget Office (stay with me) forecasts that America's debt will reach a whopping $1.186 trillion this year. This does NOT take into account the massive $775 million stimulus package the Obama administration will unleash to try and kickstart the economy.

The President-elect warned today: “Unless we take decisive action, even after our economy pulls out of its slide, trillion dollar deficits will be a reality for years to come.”

What does this mean? Well high debt levels put pressure on inflation, in turn encouraging policy makers to raise rates.

If Brown prolongs the election for too long, he could be entering a contest with high costs of borrowing as the background. He has been warned.