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Bank of England ‘may be considering a half-point rate rise’

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08/05/2007

The Bank of England Monetary Policy Committee (MPC) is expected to mark its 10th anniversary by raising interest rates, possibly by 0.5% to combat inflation.

The decision will be hotly debated by the MPC, but some commentators feel that a higher than customary rise is on the cards as members try to put the brakes on the housing market and cool inflation in the wider economy.

Higher food and petrol prices have ensured the Consumer Price Index (CPI) has soared to 3.1%, well above the Government’s target of 2%.

“My own feeling is that rates may go to 6.25% in the next few months in a bid to dampen inflation, especially if April’s figure comes out at over 3%,” said City analyst Colin Perry.

“The Governor of the Bank of England has already had to write to the Chancellor explaining why the inflation rate is so high and I am sure he will not want to pen many more letters like that, particularly in light of the fact that the current Chancellor could well be the next Prime Minister.”

He continued: “If the Bank does hike the rate by even a quarter of a point on Thursday it will be the fourth increase since August 2006 and the rate will stand at its highest level for six years, which may put mortgage borrowers under pressure.”

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