Rate cuts unlikely, Bank of England to suggest

13 August 2008

Rising inflation in the UK is likely to put off rate cuts from the Bank of England for months, it has been suggested.

The latest Consumer Price Index was released yesterday, showing that inflation hit 4.4 per cent last month.

This is 0.6 per cent above June's figure, and a full 2.4 per cent above the Bank's target rate.

It also represents a 16-year inflation high.

Speaking to the BBC, Vicky Redwood at Capital Economics said that the rate was likely to hit five per cent by the end of 2008, before tapering off over the following months.

"While we are in no doubt that the committee will cut interest rates aggressively once inflation has shown signs of peaking it would be understandable if it did not want to signal that rate cuts are imminent just yet," she commented.

The Bank's base rate currently stands at five per cent, having been cut by 75 basis points over the past year.

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