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The Bank of England has signalled that further increases in interest rates may be in store in the coming months.
The hints came as BoE’s governor Mervyn King presented the Bank’s latest growth and inflation forecasts yesterday. Although Mr King was reticent on rates he said prices in the UK were set for a bumpy ride driven by future energy rises and political tensions in the Middle East.
Mr King said he thought there was an increasing likelihood that inflation would rise to 3.1% or above in the coming months, forcing him to write to Gordon Brown with an explanation.
On rates Mr King said: "We have not made a decision that it's necessary to raise interest rates further. I think we will have to wait and see for what other changes may or may not be necessary."
As for first-time buyers now faced with the prospect of higher mortgage payments after the rate increase, Mr King said their main obstacle was not dearer borrowing but high house prices, which were finally rising at a more sustainable pace.
Philip Shaw, chief economist at Investec is now forecasting a November hike on the back of the statements. "The MPC is refusing to sound the all-clear on interest rates," he said. "There is a warning that rates may have to rise, but it will depend on the domestic and world-wide economy over the next months."
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