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Experts predict interest rate rise

Some City experts may have been a little too hasty when ruling out an interest rates hike this year, judging by the Bank's latest forecast.

Economists saw the recent run of weak economic date as an indicator that rates will remain at a record low of 0.5 per cent for the rest of 2011, but the latest projections from the Bank show that if the rate rises twice this year, inflation will return to its two per cent target.

Although some commentators have not ruled out an August rise, many are now predicting the increase to come in November.

The unpredictable progress of the UK economic recovery means UK homeowners are facing even more uncertainty.

According to the chief European economist at Capital Economics, Jonathan Loynes, the report endorsed expectations of some policy tightening later this year.

However, Mr Loynes did caution that the forecasts are based on "optimistic" growth assumptions of just below two per cent in 2011 and around 2.5 per cent next year.

Mr Loynes said: "If we are right in expecting weaker growth in the face of the fiscal squeeze - not to mention falls in oil and commodity prices - inflation could fall back further than the Bank expects."

Howard Archer, chief UK and European economist at IHS Global Insight, said the report suggested rates were more likely than not to start rising in late 2011.

Copyright © Press Association 2011

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