The Bank of England will start raising interest rates within six months to curb inflation

The Bank of England will start raising interest rates within six months to curb inflation, the Confederation of British Industry said.
The Monetary Policy Committee will increase its benchmark interest rate a quarter point every three months from the second quarter of 2011 until mid 2012, the London-based group said in a report released today. It then goes to step up the pace of increases at the end of that year with a rate of 2.75 percent.
"The persistent strength in energy prices and raw materials is a growing concern, as is likely in the sense that inflation will not fall as sharply as many expect," said CBI chief economic adviser, Ian McCafferty. "Growth in the beginning of 2011 is likely to be very slow, but we hope that the recovery itself to stay on track."
Bank of England policy makers remain divided on the need to curb inflation or increased bond purchases to offset the effect on the economy of the fiscal burden of government. Inflation accelerated to 3.3 percent in November, exceeding the government's limit of 3 percent for the ninth month.
The Consumer-price growth "significantly higher" central bank target of 2 percent next year and only fall "just below" the goal in the first quarter of 2012, the CBI forecasts. Inflation to end 2012 at 2.4 percent, he said.
The pound was little changed against the dollar today and traded at $ 1.5536 as of 10:41 am in London.
Growth forecasts
The CBI said the economy will grow 0.6 percent in the current quarter before slowing to 0.2 percent in the first three months of 2011. The average growth of 2 percent in 2011, he said, maintaining a prediction of September, and accelerate to 2.4 percent in 2012. It also forecasts housing prices will fall by 4 percent next year and remain unchanged in 2012.
Gross mortgage lending fell 5 percent to 11.1 million pounds (17.2 billion U.S. dollars) in November from the previous month, the Council of Mortgage Lenders said today. A separate report based on data from six lenders published by the Bank of England showed that banks granted 45,000 loans for home purchases last month, compared with 44,000 in October, much less than half the peak of the real estate boom 2007.
The Bank of England left its emergency plan with option to buy bonds unchanged at 200 billion pounds this month and kept the benchmark rate at a record low of 0.5 percent.
MPC member Adam Posen, who has asked the bank to increase the stimulus, said last week policy makers should not "overreact" to inflation, because it may decrease to below 1 percent in two years. His colleague Andrew Sentance, however, voted to raise interest rates since June.