Inflation fears turn up heat ahead of Bank rate decision

Julian Harris
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RISING inflation expectations are adding pressure on the Bank of England to lift interest rates, ahead of today’s latest decision by the monetary policy committee (MPC).

“Inflation expectations have soared since the last quarter,” said researcher Monica Insoll yesterday, referring to a survey of investors conducted for the ratings agency Fitch.

Over half the respondents – 55 per cent – now believe that there is a high risk of inflation over the next 12 months, she said -- up from 22 per cent in the final months of 2010.

“Investors are increasingly sceptical that higher inflation simply reflects the one-off effects of higher food and fuel prices,” said David Riley of Fitch, which polled the views of managers of an estimated $3.7 trillion (£2.3 trillion) of assets.

“Central banks may come under increasing market pressure to ‘normalise’ monetary policy sooner rather than later,” Riley added.

Interest rates will slowly rise starting from the second quarter of this year, the Confederation of British Industry (CBI) predicted yesterday.

The CBI expect rates to average 0.88 per cent this year, before reaching 2.06 per cent in 2012.

Meanwhile, two former Bank of England rate setters -- Deanne Julius and Tim Besley -- said the MPC should send a message through their voting balance that they are willing and ready to tackle inflation.

February’s inflation rate “could be the shocker” that convinces the Bank to move rates, Julius told the Fathom monetary policy forum yesterday.