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Inflation ‘finely poised’ as more rate rises still possible

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13/02/2007

Inflation is expected to have eased in January after jumping to an 11-year high in December 2006.

The Consumer Prices Index is expected to show a dip to 2.9% from 3.0%, relieving the pressure on the Bank of England to raise rates again.

The Monetary Policy Committee (MPC) at the Bank of England has raised rates three times since last summer in an attempt to bring the figure down to 2%, the Government’s stated maximum target for inflation.

But despite the encouraging movements in the level of inflation, some observers believe the situation is finely poised. “With inflation likely to remain high in the first quarter of this year, the MPC is extremely sensitive about breaching the 3% barrier,” said an analyst for a major City bank.

“A rise to 3% would mean that Bank of England governor, Mervyn King, would have to write a letter to the Government explaining the situation, and making clear what measures were in place to get the figure back down below the target.”

He concluded: “Because of this I believe that further interest rate rises are not only possible but likely in the next few months, which is not so good for those with mortgages and other loans.”

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