Rates expected to rise again over summer

Rates expected to rise again over summer

Economists expect interest rates to rise again in August, following today's quarter point hike to 5.5%.

Industry leaders said they understood the Bank's need to raise rates today, but called on policymakers to exercise caution in the months ahead.

Economist Philip Shaw at Investec Securities said: "The quarter-point increase is no surprise and comes against a background of rising inflationary pressure. We expect a further increase to come, to take base rates to 5.75%."

David Kern, economic adviser at the British Chambers of Commerce, said: "At this stage, calls in some quarters for further Bank rate increases in the near future are misguided and potentially dangerous.

"Having acted today there are powerful arguments for the monetary policy committee to wait before raising rates again, so as to avoid damaging the economy unnecessarily."

Despite the recent rate increases the housing market has remained strong, with Halifax today reporting year-on-year price growth of more than 10%

However, a recent fall in the levels of new mortgage approvals suggests the higher borrowing costs may be beginning to bite.

Retail sales have also remained resilient, while economic growth in the first three months of the year was estimated at 0.7%, ahead of expectations.

Rising food and energy prices are seen as the main drivers for inflationary growth, but retreating oil prices mean household bills should recede this year. The next.....continued below

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inflation announcement is due on May 15, followed a day later by the Bank of England's quarterly economic report.

The Bank has been concerned that the strength of the UK economy has enabled firms to exercise greater pricing power, while figures today showed a healthy rebound in manufacturing activity.

Peter Patterson, senior economist at the Institute of Directors, said: "Underlying inflationary pressures have been rising for some time, and the Bank's priority must be to get on top of these as quickly as possible, even if this means a further rate increase in the near term."

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