Inflation is likely to hit its 2% target during 2006 and then climb further, the Bank of England has predicted but the Bank's governor Mervyn King said on Wednesday, "The balance of risks offsets the extent to which the central projection is off target."

The Bank's quarterly inflation report, issued on Wednesday, said that pressure in the economy could "push up inflation" raising fears of an interest rate rise.

But at a news conference following release of the report, the governor was inclined to sit on the fence, saying that huge uncertainties weighted to the downside.

Stressing the downside to the projection, Mr King said, "Drawing strong conclusions about spending over the Christmas period is something we should all give up for Lent."

The Bank predicted the economy would continue to grow robustly but the risks to the growth forecast were on the downside because of the possibility of uncertain consumer spending.

Consumer spending is bound up with housing, however the Bank appeared broadly satisfied with the behaviour of Britain's once-booming housing market.

"The big picture is that house price inflation has eased significantly," King said, but sitting on the fence once more, noted that the future was impossible to predict. "House prices may fall modestly for a period. But the outlook for house prices is extremely uncertain," he said.

Most economists think that the interest rate is set for another hike, according to Reuters. Given the bank's forecast for higher inflation the simple passage of time is working against the notion that rates can be held at 4.75 percent, pointed out one economist at JP Morgan Chase Bank.