Interest rate to rise again warns Bank
The Bank of England has signalled that interest rates will need to rise one more time to pull inflation back in line.
In its quarterly inflation report, the Bank said that inflation was on course to decline sharply over the year, settling at around the government's 2% target by the end of 2008. However, this forecast is based on City expectations for one further quarter-point rise in interest rates to 5.5%.
Economists have pencilled in May as the most likely month for an interest rate rise but beyond then homeowners have some glimmer of consolation as the Bank hinted rates could be coming down again next spring.
The report suggested inflation would fall from its current 2.7% to about 1.8% by the end of this year thanks to tumbling energy costs and lower import prices. It is then seen picking up again to hit the 2% bull's-eye at the two-year horizon - the point at which current interest rate decisions have their biggest effect. Thereafter, it drops back down again.
The predictions assume rates will be raised again during the second quarter. If they were not increased, the Bank believes that inflation would overshoot the target.
B of E Governor, Mervyn King, said inflation had been remarkably volatile by the standards of the past decade but the medium-term outlook was what mattered.
"Just as 3% inflation did not mean the end of the world was nigh, so 2.7% does not mean that we can ignore concerns about inflation ahead," he said. "The outlook over the next year is highly uncertain because of the large impact which reductions in gas and electricity prices are likely to have on inflation."
The Bank of England has signalled that interest rates will need to rise one more time to pull inflation back in line.
In its quarterly inflation report, the Bank said that inflation was on course to decline sharply over the year, settling at around the government's 2% target by the end of 2008. However, this forecast is based on City expectations for one further quarter-point rise in interest rates to 5.5%.
Economists have pencilled in May as the most likely month for an interest rate rise but beyond then homeowners have some glimmer of consolation as the Bank hinted rates could be coming down again next spring.
The report suggested inflation would fall from its current 2.7% to about 1.8% by the end of this year thanks to tumbling energy costs and lower import prices. It is then seen picking up again to hit the 2% bull's-eye at the two-year horizon - the point at which current interest rate decisions have their biggest effect. Thereafter, it drops back down again.
The predictions assume rates will be raised again during the second quarter. If they were not increased, the Bank believes that inflation would overshoot the target.
B of E Governor, Mervyn King, said inflation had been remarkably volatile by the standards of the past decade but the medium-term outlook was what mattered.
"Just as 3% inflation did not mean the end of the world was nigh, so 2.7% does not mean that we can ignore concerns about inflation ahead," he said. "The outlook over the next year is highly uncertain because of the large impact which reductions in gas and electricity prices are likely to have on inflation."
posted by tony at 5:33 PM
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