The Monetary Policy Committee has sparked further fears of a housing market slowdown after Mervyn King, governor of the Bank of England, warned of more rate rises before of the end of 2007.
The governor, speaking to the Confederation of British Industry in Cardiff, told delegates that: “market expectations of where Bank rate will be at the end of this year have risen from 5% in the middle of last year to 6% now”.
King explained the MPC’s caution towards spiraling inflation had led to the two rate rises in 2007.
Today’s news of inflation dropping to 2.5% will please King and his Committee.
King adds: “The MPC will be watching closely the indicators of capacity pressures, pricing intentions and inflation expectations.
“If these indicators remain elevated, the MPC may need to take further action.
“There is no simple or self-evident answer to the question of what path of interest rates will be necessary to bring inflation back to the 2% target and keep it there.”