Bank of England to hold rates

THE Bank of England is expected to leave interest rates on hold this week after it raised the cost of borrowing last month for the first time in two years.

Economists predict that the Bank’s Monetary Policy Committee (MPC) will peg rates at 4.75% at the end of its monthly two-day meeting on Thursday.

It followed the surprise hike in August as the MPC tried to curb rising inflation on the back of higher gas and electricity bills.

An increase in interest rates is good news for people with savings but hits those with mortgages, loans and credit card bills as it makes repayments more expensive.

But this month’s expected respite for those in debt is likely to be short-lived with a further rise forecast for November.

Economist David Page of Investec Securities said: “We expect rates to be left on hold at 4.75% this week and to rise to 5% in November.”

John Butler of HSBC also predicted rates to increase in November.

The Consumer Price Index (CPI) rate of inflation was 2.4% in July — the third month in a row above the bank’s 2% target.

It has been pushed up by soaring energy bills and higher petrol prices although goods such as clothes are falling in price.

Bank of England governor Mervyn King said last month that there was a 50-50 chance that inflation would rise above 3% over the next six months.

This would force Mr King to write an explanatory letter to Chancellor Gordon Brown for the first time since the Bank was given control of interest rates.

Mr King highlighted higher energy bills, but also pointed to the impact of higher university tuition fees in England, which have risen sharply and according to Mr King could add 0.25% to the headline rate of inflation in October.

These factors could encourage the bank to lift rates in the coming months, especially as the British economy expanded at a bullish 0.8% in the second quarter of the year.