Confirmation interest rates are likely to hit 6% before dropping has sparked angry protests across the industry.
A Bank of England inflation report today hints the base rate will have to climb from 5.75% in a bid to bring inflation down towards the 2% level.
But some critics have jumped on the report, and claim a vote for an increase will be secured as soon as September.
Ian Kernohan, economist at Royal London Asset Managament, says the housing market is going to take a heavy hit should a rise be approved.
“The latest inflation report sanctions a further increase in interest rates to 6%,” he says. “Since the hawks on the MPC are keen to move quickly, they will vote for a rise in September.
“Other members will be more cautious, but whether rates go up in September or October is less important than the effect which 6% rates are going to have on the economy, particularly the housing market.
“The economy is going to slow next year and the speed at which this happens could affect the timing of the next election.
“If the slowdown is fairly gradual, then Mr Brown might be tempted to go in the spring, for fear that things might get worse. If the slowdown is more immediate then the spring option would look less attractive.”
Simon Ward, an economist at New Star, adds: “The MPC retains a tightening bias, but the projections are slightly less hawkish than in the February and May reports.
“Key changes are a downward revision to growth expectations and a forecast that inflation will fall below target after two years if the Bank rate is raised again.
“Our MPC-ometer continues to favour rates staying on hold through to the year-end, but the committee will need to see more evidence of consumer/housing market cooling and will be sensitive to any adverse news on inflation expectations.”
Interest climbed a quarter of a per cent last month, making it five interest rate jumps in less than a year.
In its inflation report release earlier today, the Bank states: “Since the May report, the MPC has raised the Bank rate by 25 basis points to 5.75%.
“Short-term sterling interest rates suggest that market participants expect Bank Rate to peak at close to 6% by early 2008 and then drop back.”
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