Further rate rise becoming more 'unlikely'

17/08/2007

A sharp dip in the level of inflation measured by the consumer prices index (CPI) is making the case for another interest rate rise much weaker, a prominent business body has said.

The latest inflation report from the Bank of England put CPI inflation at 1.9 per cent, marginally below the two per cent Treasury target and well below recent levels.

This comes just five months after inflation hit a recent peak of 3.1 per cent, prompting the bank's governor to write to the chancellor to explain the economic situation.

Coupled with equity falls in recent days analysts are now suggesting that a rate rise to six per cent will likely be delayed and may even not appear at all.

"This drop in inflation should make it even more unlikely that the MPC will be in a rush to raise interest rates to six per cent any time soon," said Narinder Gill, senior economist at the British Chambers of Commerce.

"With the effect of the recent rate rises appearing to have the impact they were meant to and the increasing instability in the financial markets, it would be folly for the MPC to raise rates next month."

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