Rate rises on the cards

A new report by the Bank of England makes interest rate rises more likely.

17:05 12 May 2004

A new report by the Bank of England makes interest rate rises more likely.

The Bank of England's quarterly inflation report has revealed that UK inflation is likely to rise above the official two per cent target towards the end of 2006.

The Bank's Monitory Policy Committee sets the UK's interest rate with a view to holding inflation at two and a half per cent. This is a level of growth that is considered healthy but stable.

As such if inflation tops the 2.5 per cent target interest rates are raised to bring it under control.

Worryingly for people without long term fixed rate mortgages today's report predicted that inflation will move close to 2.5 per cent in two years' time.

The Bank has already acted to try and head off this long distance threat - last week it upped rates to 4.25 per cent last week.

But Mervin King, governor of the Bank, has said it is impossible to know for sure if further rate hikes are inevitable.

"We shall judge this month by month," said Mr King.