Interest rates to hit 5.75%?
Published On 1 May 2007
A think-tank has warned that the Bank of England will need to increase its base rate to as high as 5.75 per cent in order to stem inflation.The National Institute for Economic and Social Research (NIESR) has revealed that an anticipated rise to 5.5 per cent this month may not be enough to counter the record high levels of inflation.
"The rise in RPI inflation feeding through into higher wage demands remains a cause for concern, one perhaps that would be counteracted by a half percentage point jump in the base rate," the forecast stated, Reuters reports.
Retail price inflation (RPI) has now reached a 16-year high of 4.8 per cent, while consumer price inflation (CPI) now stands at 3.1 per cent - significantly higher than the government's two per cent target.
The NIESR attributes high rates of wage-driven inflation to the Bank's decision to slash interest rates back in 2005.
"The cut in interest rates in the summer of 2005 now looks to have been a mistake," its report said. "Expectations of inflation have risen and the Bank's actions have not brought them down yet."
