Have UK interest rates peaked?

The Bank of England's Quarterly Inflation report provided a severe jolt to anyone who thought interest rates had peaked. So how high might rates have to go in order to dampen down inflation?

The Bank of England's Quarterly Inflation Report provided a severe jolt to those who previously believed that UK base rates might have peaked at 5.5%. As ever, the Report showed the targeted measure of CPI inflation hitting its 2% target over the two year forecast horizon, however, the Report forecast average base rates of 5.7% between Q3 2007 and Q2 2008 before dropping back to 5.5% by 2009. Furthermore, the Report indicates that even using this raised profile the risks to inflation remain skewed to the upside judging by the range of possible outcomes spread between 1% on the downside and 3.5% on the upside. The clear conclusion, and that immediately factored in by the financial markets, is that UK base rates might not even have peaked at 5.75%.

UK interest rates: why they could go above 5.75%

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