There are strong chances that interest rates in U.K will rise this month, says a report. According to a research conducted by BDO Stoy Hayward inflation threat expectations have been shot to a two-year high. BDO has stated that The Bank of England’s Monetary Policy Committee can increase interest rates to combat inflation. Moreover, it further said that the committee may even adopt a wait and see approach which can be risky.
Following the robust economic growth the central bank had unexpectedly raise the interest rates from 5 percent to 5.25 percent in January this year, bring the rates parallel to the U.S. interest rates. The bank had also indicated that if the economy continues to grow at this rate and in circumstances when inflation rise becomes imminent it can raise the interest rates further. Since then, despite strong economic progress the risk of interest rates rise strongly persists in UK business sphere.
The report has further stated that the economy is in good health and it is able to absorb a rise in the rates, indicating that a further rise may not have significantly an adverse impact on the economy. Moreover, the growth rate for the first six months of 2007 was predicted at 3 percent, but the recent study shows somewhat less positive outlook of the economy.
The constant uncertainties regarding a possible interest rate hike definitely dented business confidence in U.K. There was always strong possibility that the rise in inflation would be triggered in the service sector, which was quite logical too. The start of the year witnessed a strong demand in service sector for higher pay packages and rising oil prices had significant impact on travel cost. Consequently, the inflation threat has always been on the cards.
