The central bank of the U.K. could increase its benchmark interest rate as much as three times this year as inflation continues to remain well above the target set by policymakers, according to The Daily Telegraph. In his latest letter to the Chancellor explaining high inflation, the Governor of the Bank of England, Mervyn King, came as “close as he can” to saying that the central bank will begin raising the benchmark rate from a record low of 0.5% in May. Philip Rush of Nomura also said that interest rate futures are pricing in quarter-point increases in the bank’s main rate every three months for the next two years or more, which would mean a 0.75% increase to 1.25% by the end of 2011.
The outlook comes on the heels of the latest consumer price index that was found to be at the highest level in more than two years, and at 4% marked more than double the rate targeted by officials. The BOE also released its quarterly Inflation Report that warned inflation would peak as high as 5% before falling towards the 2% target by 2012. The bank also slightly lowered its forecast for growth in 2011, warning, “The strength of the recovery is likely to be dampened by the fiscal consolidation and continuing squeeze on households’ purchasing power.”
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Click here for coverage of the inflation report from The Daily Telegraph.
Click here for economists’ reactions to the BOE report from The Daily Telegraph.