LONDON (Reuters) - The central bank cited above-target inflation as one reason for raising interest rates last week and figures on Tuesday could signal its work is not yet done.
Economists polled by Reuters expect consumer price inflation to rise to 2.6 percent in October. Such a reading would be the highest since the series began at the start of 1997 and the sixth consecutive month inflation has been above the bank's 2 percent target.
The biggest upward effect on prices is expected to come from university tuition fees, which have risen 150 percent this year for new students. The Bank of England has already said it expects higher tuition fees to add 0.25 percent to the headline index.
"A mammoth jump in university tuition fees, continued upward pressure on domestic utility bills and food price base effects point to a jump in the October inflation rate," says Alan Clarke at BNP Paribas . "We expect an acceleration to 2.6 percent with risks skewed to the upside."
Retail price inflation, the measure on which most wage deals are based, is also forecast to rise to 3.8 percent -- its highest in more than eight years.
The timing of such a rise ahead of the crucial January pay round will keep policymakers nervous of a wage-price spiral developing, although there has been little sign yet of this happening.
The latest wave of utility bill rises will also impact this week's inflation figures. Nevertheless, with global energy prices now declining, analysts expect fuel costs may soon come down.
"Overall, we expect the upward influences of rising utility bills and tuition fees to be at least partly offset by falls in petrol prices", says Capital Economics.
The London-based consultancy is forecasting a below-consensus inflation reading of 2.5 percent and says the risk of inflation rising above 3 percent -- a level which would require the Bank to write an explanatory letter to the government -- has receded.
Data on Monday showed weaker oil prices were already putting downward pressure on producer prices, with factory gate inflation its weakest in more than two years.
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Tuesday, November 14, 2006
Thursday, November 09, 2006
looks like interest rates will rise today 9th november 06
The Bank of England looks all but certain to raise interest rates by a quarter-point later on Thursday but analysts are divided over whether borrowing costs will then have to rise again early next year.
BoE Governor Mervyn King said recently there was no such thing as a "done deal" but all 58 analysts polled by Reuters last week disagreed, predicting the central bank's Money
Policy Committee would lift rates to 5.0 percent at noon.
That would take them to their highest level since the September 11 attacks on the United States prompted the most aggressive round of global monetary easing in decades, and puts borrowing costs 150 basis points above the 48-year low hit in 2003.
"A 25 basis points interest rate hike to a five-year high of 5.0 percent on Thursday looks mightily like a done deal to us," said Howard Archer, chief UK economist at Global Insight.
Policymakers are worried that inflation -- already running above the BoE's 2.0 percent target may climb further and prompt higher wage demands in the New Year pay round.
The price measure on which most wage deals are based was running at an 8-year high in September as high petrol and home utility bills raised the cost of living for most Britons.
So far there has been little sign of a wage spiral but the MPC has repeatedly indicated it wants to send out an uncompromising message to bosses and workers alike that it will not allow big pay deals to fuel inflation.
GOVT GIVES GREEN LIGHT
The government, in the form of Treasury minister Ed Balls, also appears to have given the central bank a green light to tighten the screws by warning that policymakers have to be vigilant.
The two newest members of the MPC -- Andrew Sentance and Timothy Besley -- wanted to hike rates in October.
Most of the others thought it better to wait for the analysis of their November forecast round but judged the case between hiking rates and keeping them steady finely balanced.
Much of the economic news since has been pretty strong.
House prices, particularly, keep surprising on the upside, showing no sign that August's surprise hike has deterred property-mad Britons from taking on even more mortgage debt.
The respected National Institute of Economic and Social Research said this week the BoE would not only have to raise rates on Thursday but again in the early months of 2007.
Other economists, however, are not so sure.
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There is uncertainty over the course of U.S. economy and how fast it is slowing. Consumers at home, meanwhile, may already be buckling under the weight of their debts and may not easily be able to swallow higher borrowing costs.
The number of people declaring themselves insolvent hit a record in the third quarter.
"(5 percent) should be the peak," said Jonathan Loynes, chief European economist at Capital Economics. "We still expect the MPC to be back in loosening mode before the end of next year."
BoE Governor Mervyn King said recently there was no such thing as a "done deal" but all 58 analysts polled by Reuters last week disagreed, predicting the central bank's Money
Policy Committee would lift rates to 5.0 percent at noon.
That would take them to their highest level since the September 11 attacks on the United States prompted the most aggressive round of global monetary easing in decades, and puts borrowing costs 150 basis points above the 48-year low hit in 2003.
"A 25 basis points interest rate hike to a five-year high of 5.0 percent on Thursday looks mightily like a done deal to us," said Howard Archer, chief UK economist at Global Insight.
Policymakers are worried that inflation -- already running above the BoE's 2.0 percent target may climb further and prompt higher wage demands in the New Year pay round.
The price measure on which most wage deals are based was running at an 8-year high in September as high petrol and home utility bills raised the cost of living for most Britons.
So far there has been little sign of a wage spiral but the MPC has repeatedly indicated it wants to send out an uncompromising message to bosses and workers alike that it will not allow big pay deals to fuel inflation.
GOVT GIVES GREEN LIGHT
The government, in the form of Treasury minister Ed Balls, also appears to have given the central bank a green light to tighten the screws by warning that policymakers have to be vigilant.
The two newest members of the MPC -- Andrew Sentance and Timothy Besley -- wanted to hike rates in October.
Most of the others thought it better to wait for the analysis of their November forecast round but judged the case between hiking rates and keeping them steady finely balanced.
Much of the economic news since has been pretty strong.
House prices, particularly, keep surprising on the upside, showing no sign that August's surprise hike has deterred property-mad Britons from taking on even more mortgage debt.
The respected National Institute of Economic and Social Research said this week the BoE would not only have to raise rates on Thursday but again in the early months of 2007.
Other economists, however, are not so sure.
www.factsonloans.com for latest money details and free newsletter
There is uncertainty over the course of U.S. economy and how fast it is slowing. Consumers at home, meanwhile, may already be buckling under the weight of their debts and may not easily be able to swallow higher borrowing costs.
The number of people declaring themselves insolvent hit a record in the third quarter.
"(5 percent) should be the peak," said Jonathan Loynes, chief European economist at Capital Economics. "We still expect the MPC to be back in loosening mode before the end of next year."