THE BANK OF ENGLAND MAY HAVE TO RAISE RATES AGAIN

UK interest rates may need to rise one more time if inflation is to be brought down to the 2% target, a Bank of England report has hinted.
Its latest Quarterly Inflation Report said inflation should return to 2% by 2009 if rates "move in line with market expectations".

With the City expecting a quarter-point rise to 6% by March 2008, analysts said this was now a near certainty.

The Bank has raised interest rates five times in the past year.

UK inflation stood at 2.4% in June, down from 3.1% in March, with the Bank putting the fall down to a drop in household electricity and gas prices.

However, it said inflation was likely to miss the 2% target if interest rates remained at the current 5.75% level.

Investec economist David Page said: "It is a clear indication of risks that we'll see a hike [in interest rates] over the next three months."

Credit worries

UK interest rates were kept on hold for August, following July's quarter point rise to 5.75%. Rates have risen five times since August last year as the Bank has tried to calm inflation.

The Bank and the government use the Consumer Price Index (CPI) of measuring inflation, with the 2% target set by the Treasury.

In a press conference following the publication of the latest report, the Bank's governor, Mervyn King, insisted the credit problems in the US, centred on the sub-prime mortgage sector, did not amount to an international crisis.

"I don't think there is much evidence of major damage to loan performance in other markets," said Mr King.

Some economists have warned that the US credit squeeze will mean a reduction in takeover activity, leading to a fall in economic activity.


SOURCE: BBC