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Further rate hike question of when not if

It is unlikely that the Bank of England (BoE) will vote for another interest rate hike this week but given the shock factor of January's hike, nothing should be ruled out, financial analysts have concluded.

Global Insight does not expect the bank to increase interest rates to 5.5 per cent when it meets this Thursday, although admits that conditions are ripe for it to do so.

Inflation has risen to three per cent, despite the bank increasing the base rate in both August and November.

Combined with news that pay deals are averaging 3.5 per cent, Global Insight notes that the bank's monetary policy committee (MPC) could be moved to order a fourth rise this week.

However, it points out that the MPC itself expects inflation to fall back, "possibly quite sharply", in the second half of the year, while BoE governor Mervyn King has previously advised waiting until Easter to assess the impact of Christmas spending.

Furthermore it adds that there is sufficient slack in the labour market to curb employee's bargaining power and short of some "alarmingly high pay settlements", the bank is unlikely to respond to pay deals with an instant hike.

Nevertheless, it acknowledges that conditions do point towards a rise, noting "there is a very real risk that interest rates could go higher still", but predicts the BoE will hold off until March.

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05/02/2007 13:52:22

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