Interest rates likely to rise to 5% in November 06

By: Sarah_Jones

A further rise in interest rates in November 06, looks highly likely after the Bank of England again raised fears over rising inflation. Minutes from this month's meeting of the Bank's Monetary Policy Committee (MPC) showed that all eight members voted to keep the cost of borrowing on hold at 4.75%. But it also showed that the MPC thought it was right to impose the shock rise from 4.5% in August as inflation was set to stay above its 2% target "for some time". Inflation hit 2.5% in August 06, - its joint-highest level since Labour came to power and the fourth month in a row it was above 2%.

The MPC minutes showed that the Bank was concerned about inflation rising further during the rest of the year because of higher food prices, soaring energy bills and the impact of university tuition fees. The Bank of England governor Mervyn King warned last month that inflation could hit 3% in the coming months. The MPC was also concerned that expectations of higher inflation could boost wage demands in the next pay rounds.

The Housing market continuous to stubbornly rise, surprising the Bank, MPC member Kate Barker said 'House prices are rising faster than earnings, and I have to say that's a surprise'

Money market rates are already discounting a move to 5% by the end of this year with a further rise on the cards during early 2007, so we may be looking at interest rates of 5.25% by Feb. 2007 or earlier of inflation hits 3%.

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