UK inflation 'set to accelerate'

Business confidence is up, BDO says

Rising price pressures in the economy are set to lead to more interest rate rises, a business survey has said.

The study, by accountants BDO Stoy Hayward, found business confidence at its highest level for six years.

The rise in optimism is set to lead to faster economic growth later this year which could push up the rate of inflation, the report said.

As a result, BDO said the Bank of England will have to raise rates again, probably in either April or May.

Decision time

The Bank of England's rate-setting body - the Monetary Policy Committee (MPC) - is due to meet this week to discuss if another rate move is needed.

A rate rise in the next three months is virtually a done deal Douglas McWilliams, Centre for Economics and Business Research

The MPC has raised rates twice in the past four months, taking them to 4%, in an attempt to prevent the economy from overheating.

Few analysts think rates will go up this month, but BDO Stoy Hayward believes another increase is not far off.

Its latest business trends report said companies had increased their output expectations due to stronger consumer spending, an expanding world economy and rising confidence in the financial markets.

It also said firms noticed a rise in price expectations last month, with its inflation index jumping by 2.1 points in February to 101.2.

BDO said its survey results implied that inflation would edge above the Bank of England's 2% target during the third quarter of 2004.

"Emerging inflationary pressures, both worldwide and in the UK, mean that a rate rise in the next three months is virtually a done deal," said Douglas McWilliams, chief executive of the Centre for Economics and Business Research who carried out the research for BDO.

House prices

The most recent set of latest inflation figures showed the government's preferred consumer prices index (CPI) went up by 0.1 of a percentage point to 1.4% in January.

Despite being well below the 2% target, the Bank has already started to tighten rates following concerns that consumer debt and house prices are rising to dangerously high levels.

So far the rate rises appear to have done little to cool the housing market.

Last week, the latest figures from the Nationwide building society showed UK property prices jumped by more than 3% in February.

And a survey released on Monday by property website Hometrack showed house prices grew by 0.9% last month in England and Wales, the biggest rise it had measured since October 2002.