The Bank of England governor Mervyn King again warned of higher UK interest rates due to strong economic activity and continuing inflationary pressures at a CBI Event.

In his reasoning for raising UK interest rates to 5.5% in May , he stated : "The Monetary Policy Committee will be watching closely indicators of capacity pressures, pricing intentions, and inflation expectations. If these indicators remain elevated, the MPC may need to take further action. There is no simple or self-evident answer to the question of what path of interest rates will be necessary to bring inflation back to the 2% target and keep it there."

Bank of England Governer Warns of another Interest Rate Rise

Even though the bank monitors the CPI inflation rate, a better indicator of inflationary pressures in the economy is the RPI Index, upon which virtually all pay deals are based and thus acts as a significant driver for future inflation. The recent anticipated dip from 4.80% to 4.5% makes little difference to the trend and at best will give one more months reprieve for borrowers before the next rate rise occurs.

The Market Oracle forecast is for the next rise to 5.75% to occur in August 2007. The near two year standing forecast has been for UK interest rates to peak at 5.75% by September 2007. Following the rise to 5.75% the Market Oracle will publish the next forecast for UK interest rates for the next 2 years.

The minutes of the last Bank Of England meeting will be published at 9.30am on Wednesday 20 June.

By Nadeem Walayat
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