The British economy is set to grow rapidly and inflation will likely pick up sharply, the Bank of England said today, hinting interest rates may go up again before not too long.
Only a week after the central bank raised interest rates for the second time in three months, Governor Mervyn King said that although inflation was seen at its two percent target in two years, it was expected to keep rising after that.
"It is crucial to bear in mind that, in the central projection, inflation is continuing to rise at the two-year horizon," he said.
In its latest quarterly Inflation Report, the BoE showed economic growth picking up even further above trend, rising at a rate of more than three percent for most of the next two years.
And inflation, though now running below its 2.0 per cent target at 1.3 per cent was seen accelerating through this year, as policymakers continue to fret over the boom in house prices and consumer debt levels.
Interest rate futures fell as soon as the report was released and the pound gained as dealers felt more confident that more monetary tightening was in the pipeline.