Rates may climb higher

The Bank of England indicated today that interest rates may have to start rising later this year in order to keep a lid on inflation.

The minutes of this month's meeting of the Bank's Monetary Policy Committee, held two weeks ago, showed that eight of the nine members backed the decision to keep rates on hold at 5.2%, with one - Sushil Wadhwani - voting for a quarter point reduction.

However, the minutes noted that some members of the MPC believed that recent developments had "made it rather less likely that the next movement in interest rates would be down".

They added: "The committee should monitor the situation, being prepared to adjust rates in either direction in the light of new information."

The uncertainty over the next movement in rates reflected the "dichotomy" in the economy with retail sales and the housing market surging ahead while exporters continued to struggle. The minutes said the prospects for the world economy remained "mixed" with the United States holding up better than had been feared, but with Europe and Japan doing worse than had been expected.

The strength of the pound against the euro would continue to make life difficult for exporters. Although recent inflation figures had been higher than expected, pressure on prices from seasonal foods and oil costs had begun to recede.

There was still some evidence of a "more broadly based" increase in inflation, although this may not persist, the minutes said.