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Bank signals further interest rate rise

08/08/2007

The Bank of England has signaled that a further interest rate rise will be necessary in order to bring inflation under control.

In its quarterly inflation report published today, the UK's central bank suggested that if the base rate of interest remains at its current 5.75 per cent level then inflation will not be brought back down to target within the next two years.

Bank of England policymakers have increased interest rates five times in the last year in a bid to bring inflation below an official target of two per cent.

But policymakers have signaled that a further rise to six per cent will be necessary given that the outlook for inflation still remains "highly uncertain" amid mixed reports about the state of the economy.

Recent official statistics and business surveys have given an upbeat view of manufacturing output, while consumer spending has remained firm despite previous rate rises.

However research has suggested that the housing market is beginning to cool, while Bank of England bosses have now said that economic growth will be slower than previously expected.

At a press conference launching the monetary policy committee's latest report, Bank of England governor Mervyn King explained: "The committee judges that there continues to be greater-than-usual uncertainty about the outlook for inflation.

"Overall, the balance of risks to inflation around the central projection two years or so ahead is, in the committee's judgment, a little on the upside," he added.

A further interest rate rise has been widely predicted by analysts, but confirmation that policymakers are actively considering an additional hike is unlikely to be welcomed by homeowners and consumers who will subsequently face higher borrowing costs.




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