by business editor Trevor Sturgess

Borrowers and businesses face two more tough years, with the CBI expecting a fivefold increase in the Bank of England base rate by the end of 2012.

With weekend snow reckoned to cost retailers, restaurants and pubs a 25 per cent drop in income, and the economy an estimated £1bn a day, the employers group with members across Kent and Medway says inflationary pressure could push the rate up to 2.75 per cent, more than five times the present historic low of 0.5 per cent.

It expects interest rates to start edging up in the spring, and continue to "rise gently" through to mid 2012.

Other experts also predict that interest rates will rise next year, giving a financial headache to millions of borrowers.

The CBI expects inflation throughout 2011 to be higher than previously forecast because of soaring energy and commodity prices.

It says CPI inflation will significantly exceed the Bank of England's two per cent target for a second year, mainly due to the impact of higher Vat, it expects inflation to be 2.4 per cent by the end of the year.

Ian McCafferty, the CBI's chief economic adviser, said: "The persistent strength of energy and commodity prices is a growing concern, as it is likely to mean that inflation does not fall back quite as sharply as many hope.

"This makes it more likely that the Bank of England will need to start pulling back from record low interest rates earlier, rather than later, next year."

Although the CBI does not expect a double dip recession, it believes growth will be fragile in early 2011, with retail spending dipping after the Vat increase to 20 per cent in January.

Unemployment is forecast to edge higher over the course of 2011, with a peak close to 2.6 million by the end of the year.

Business investment spending plummeted during the recession, but has started to recover this year.

The CBI forecasts seven per cent growth in 2011 and 8.5 per cent in 2012, but even so this will be lower than 2008.