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Last Updated: Thursday, 8 February 2007, 00:01 GMT
UK rates expected to stay on hold
10 note
January's rise took markets by surprise
The Bank of England is expected to keep interest rates on hold at 5.25% on Thursday, but an increase may still be possible after January's shock rise.

While most analysts expect no change to the base rate in February, that was also the case last month before it rose by a one quarter of a percentage point.

Despite last month's move to curb inflation, some analysts still predict further rate rises later this year.

UK inflation hit an 11-year high of 3% in the last month of 2006.

How rates have moved over the past year

Fuelled by higher energy costs, this was an increase on the 2.7% Consumer Prices Index figure seen in November.

It is also one whole percentage point above the government's 2% target.

Meanwhile, the wider Retail Prices Index, which includes mortgage interest payments, rose to 4.4% in December - the highest level since 1991 - from 3.9% in November.

'Further action?'

Despite the continuing need to dampen inflation, most analysts expect the Bank's rate-setting Monetary Policy Committee (MPC) to delay further interest rate rises this month.

This would give mortgage holders, who have seen their payments rise since January's increase, some much needed breathing space.

"Much could depend on the January consumer price and retail price inflation data that the MPC will have access to at the meeting," said Global Insight economist Howard Archer.

"If inflation has risen above 3%, then a majority of MPC members could decide that further strong early action is justified to highlight the bank's determination to contain medium-term inflation risks."

The Bank of England has increased interest rates on three occasions since last summer, by one quarter of a percentage point each time in August, November and January.

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