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June 6, 2007    

Analysts expect more UK interest rate hikes soon

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by Elaine Frei
Analysts expect more UK interest rate hikes soon

Despite the expectation of most analysts that the Bank of England will hold interest rates at 5.5 percent when its Monetary Policy Committee meets on Thursday, many analysts are convinced that more rate hikes are soon to come, with most believing that rates will be up to 5.75 percent by August and a few even expecting that to rise to 6 percent by the end of the year.

Several things point in the direction of more interest rate increases. The consumer price index, a major way of measuring inflation, is at 2.8 percent at present, significantly above the 2 percent goal set by the government. While house price growth has slowed, it still remains at an annual rate of around 10 percent. Wages are on the rise, at least according to some sources. Even though shop prices were only up by 0.4 percent in May from the same time last year, the price of food has continued to rise at a faster rate.

Still, some manufacturers are arguing for caution in rate hikes, fearing that if rates rise to quickly economic growth in the UK will be halted while the rate of inflation will not. Despite the fact that consumer and business confidence remains high, their worry is that if the cost of borrowing goes up too much or too quickly, it will hurt business.

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1 Comment »

  1. The Bank of England has lost control of inflation.

    The problem is they are ignoring the primary driver of future inflation which is the expansion of the money supply, which for the last 2 years has been running at above 10%, the last figure was 13.9% for May 07.

    This is having the effect of stoking up future inflation. Without addressing the causes of the money supply growth i.e. excess government spending, then the rate rises are only going to push the economy towards stagflation.

    More on this here - http://www.marketoracle.co.uk/Article1453.html

    Comment by Nadeem Walayat — July 5, 2007 @ 10:22 pm

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