Tuesday 15th May 2007
The Bank of England could still increase interest rates to reach inflation targets in the coming months, it has been claimed.
Howard Archer, chief UK and European economist at Global Insight, predicts that the banks monetary policy committee (MPC) could raise the base rate during the summer to try to achieve the long-term target of a two per cent rate of inflation.
His comments follow the news that inflation on the consumer price index (CPI), the governments benchmark figure, fell from 3.1 per cent in March to 2.8 per cent in April.
This puts it back within the target range of between one and three percentage points, suggesting that recent base rate hikes may be starting to have an effect on the UK economy.
Mr Archer states: "Inflation should trend down markedly over the coming months due to favourable base effects and lower gas and electricity bills."
But he continues that the downward trend should not be seen as ruling out the possibility of a future rate rise to 5.75 per cent.
The economist adds: "We suspect that a majority of MPC members will want to take out some further insurance against the longer-term inflationary dangers."
He predicts that this could manifest itself in the form of a rise of 25 basis points, or 0.25 per cent, with the change likely to occur before August.
Meanwhile, the Office of National Statistics reveals that utility prices are among the main reasons for the fall in CPI in April.
The office claims that a double effect increases the apparent variation year-on-year as, in addition to recent cuts by utility providers, there was also a rise in costs 12 months ago.
Among the main price increases this year are shoes and clothing, the office asserts, as well as small rises in alcohol and restaurant costs.
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