MercoPress. South Atlantic News Agency

Fears of inflation push UK rates to five year high, 5%

The Bank of England increased United Kingdom interest rates to a five-year high of 5% in response to concerns over. The quarter of a percentage rise was expected by market analysts.

In its release the Bank of England said that the UK economy recorded its fourth consecutive quarter of firm growth with household spending "volatile", but the underlying picture appears to be one of moderate expansion. .

The recovery in business investment has been maintained; the outlook for growth in the United Kingdom's main export markets remains positive, however "credit and broad money growth remain rapid and asset prices have continued to rise". .

Although unemployment has continued to edge up, the margin of spare capacity within businesses appears limited. Oil prices have dropped back, but there are signs that other pricing pressures have picked up. .

"CPI inflation was 2.4% in September and it is likely that inflation will rise further above the target in the near term, but then fall back as energy and import price inflation abates". .

Against that background the Bank judged necessary to bring CPI inflation back to the 2% target in the medium term. .

According to the BBC a majority of analysts expect the Bank's rate-setting Monetary Policy Committee to increase rates again in the New Year. Yet others think the Bank will decide it has now gone far enough. .

"Although some commentators are already looking ahead to the next rise, our forecasts suggest that a further increase should not be needed," said Ian McCafferty, chief economic advisor at the Confederation of British Industry.