The Bank of England must not go too far when it comes to interest rate increases, a new report has warned, or the economy will be damaged.According to the Ernst & Young Item Club report the monetary policy committee (MPC) faces a delicate balancing act as economic growth will put further pressure on interest rates.The forecasting group has predicted that the UK will see growth of 2.9 per cent this year – and further increases to the base rate are expected as a result.But the MPC should not over-react to growth estimates. "The Bank has acted forcefully, but it now needs to be careful not to squeeze the UK economy too hard," said Professor Peter Spencer, Item chief economist."The MPC needs to rebalance the economy and cool the housing and financial markets, without jeopardising exports." Looking ahead to the rest of the year, the report anticipated a further base rate rise to six per cent as soon as August, followed by stabilisation.A recent report from Lloyds TSB revealed that UK firms are at their most optimistic about future trading prospects for 15 years.© Adfero Ltd

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