Interest rate rise 'likely in November'
Sep 30, 2006
A further interest rate rise is looking increasingly likely in November, experts believe.
An expert and chief UK economist at Capital Economics said, however, that there was growing evidence that inflation is likely to fall sharply next year, so regardless of whether there is a rates hike in November, interest rates are likely to fall in 2007.
The Bank of England's Monetary Policy Committee (MPC) attempts to control inflation by raising and lowering interest rates and higher inflation generally leads to higher interest rates, which in turn has an effect on the amount of interest consumers have to pay back on loans and mortgages.
The Consumer Price Index (CPI) inflation rose to 2.5 per cent in August, after falling in July and has been running above the government's target of two per cent since April. Higher energy bills and university tuition fees could help to push CPI inflation to 3.1 per cent by the end of the year, said Mr Loynes, and the threat of faster wage growth could prompt a November rates rise.<br/><br/>But regardless of a November rise, inflation looks likely to fall next year, he added.
Our expert thought the the weaker tone of the data indicating more price pressures at the start of the inflation pipeline indicates that CPI inflation will drop dramatically in 2007. Together with the prospect of further weak growth, this should give the MPC further scope to reduce interest rates next year.
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