finance economics 8400464 ----- # Inflation could hit 5pc within months, says Bank of England ## The Bank of England has warned that inflation is in danger of rocketing above 5pc in the coming months, piling more pressure on policymakers to raise interest rates. ![][1] Policymakers at the Bank are divided as to when rates must rise Photo: PA By [Philip Aldrick][2], and Emma Rowley 11:24AM GMT 23 Mar 2011 [Comments][3] Its warning will ratchet up fears that inflation is spiralling out of control, fuelled by a step-change in the Bank's position in less than a month. In the February Inflation Report, it forecast inflation peaking at 4.5pc in the three months to September. Minutes for this month's Monetary Policy Committee (MPC) meeting, however, warned of "a significant risk that inflation would exceed 5pc in the near term". Concerns about escalating inflation appear to be persuading more members of the nine-strong MPC that it is time to raise rates. The minutes showed that the same three members voted for a rate hike as in February but suggested others are now more ready to join them. Markets already expect at least two rate rises before the end of the year and the Bank's own forecasts are based on a rate rise by June. Referring to the five members who voted for policy to be left unchanged this month, the minutes said: "Others thought that, given further upwards revisions to the near-term outlook for inflation, the case for an increase in Bank Rate had strengthened in recent months." ## Related Articles * ['Raise interest rates before it's too late'][4] 24 Mar 2011 * [Tackling inflation is a painful but vital priority][5] 24 Mar 2011 * [MPC minutes: analyst reaction][6] 23 Mar 2011 * [Interest rate split: how they voted][7] 23 Mar 2011 * [Interest rates predicted 'to quadruple in a year'][8] 11 Apr 2011 * [UK economy delivers double blow][9] 23 Mar 2011 However, the minutes added that they had decided to wait for a clearer picture on the events in North Africa and the Middle East as well as the Budget's impact on household finances before making up their minds. "Overall, the uncertainty created by both developments in the oil market and the recent indicators of household spending and confidence meant that there remained merit in waiting to see how those factors evolved before altering the stance of monetary policy," the minutes said. "They are moving in a hawkish direction, but for those members reluctant to hike, the uncertainty that is holding them back has got even worse," Alan Clarke, UK economist at BNP Paribas, said. Inflation has soared above expectations this year, with the Consumer Price Index hitting 4pc in January and 4.4pc last month. For the Bank's central first quarter forecast of 4.1pc to be accurate, inflation would need to fall to 3.8pc in March - a prospect economists have described as "infeasible". The small tax giveaway to families expected in the Budget, through a £600 increase in the personal allowance and a reduction of the fuel duty escalator, could help persuade MPC members that households would be able to stomach a small rise in rates. However, the minutes showed that much depends on the oil price, which rose 13pc between the February and March MPC meetings. "Unless the increase in the oil price quickly reversed, it would very likely lead inflation in the near term to rise further above the target than previously expected, adding to the risk that expectations of medium-term inflation would rise," the minutes said. "But, in addition, higher oil prices might be expected to dent global growth prospects and, potentially, business, household and investor confidence. They would also be likely to result in a reduction in the level of real incomes and hence spending by UK households." Overall, the voting remained unchanged in March. Andrew Sentance called for a 0.5 percentage point interest rate rise to 1pc while Martin Weale and the Bank's chief economist Spencer Dale voted for a 0.25 percentage point rise. Adam Posen voted again to leave rates at their record low of 0.5pc and increase quantitative easing by £50bn to £250bn. The Governor Mervyn King, his two deputies Charlie Bean and Paul Tucker, Paul Fisher and David Miles all voted for policy to remain unchanged. Separately, figures from the British Bankers' Association showed that mortgage approvals rose for a second month in February. Lenders granted 29,923 loans to buy homes, 2.6pc higher compared with a revised 29,159 in January. Compared with last year, mortgage approvals were down 11pc. Remortgaging was the only area of house finance showing significant growth - as the number hit a 19-month high in February. A total of 27,144 households switched to a new deal last month, the highest level since July 2009, the BBA said. "Mortgage lending remains subdued, with only remortgaging on an upward trend," David Dooks, director of statistics at the BBA, said in the report. "Household demand for unsecured credit is also weak, as people continue to cut back on borrowing and build up deposits." [X][10] Share & bookmark Delicious Facebook Google Messenger Reddit Twitter Digg Fark LinkedIn Google Buzz StumbleUpon Y! 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