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Last Updated: Thursday, 7 June 2007, 05:43 GMT 06:43 UK
Bank of England mulls rate levels
Bank of England
Thursday's decision is expected to be close
The Bank of England is expected to keep UK interest rates at 5.5% on Thursday, but analysts say there is a chance rates could be increased.

Last month, the Bank raised rates to their highest level since February 2001 as it tried to rein in inflation.

Most analysts expect the Bank to leave rates unchanged when it announces its decision at midday.

However, some commentators are calling for more increases, claiming that price growth is still dangerously quick.

The consumer price index (CPI), a main measure of inflation, is currently at 2.8%, well above the 2% target that the government has set.

Recent economic releases have shown that consumers and businesses are still confident about their future prospects, while house price growth has slowed but is still ticking along at an annual rate of close to 10%.

Not alone

Concern is brewing for people who took out fixed rate mortgages two years ago
Evan Davis, BBC Economics Editor

While the Bank is not expected to increase interest rates on Thursday, analysts think it will push them higher later this year, and most probably by a quarter of a percentage point in July.

Some argue that rates could touch 6% by the end of the year.

However, there are concerns among manufacturers that the higher borrowing costs will hurt their businesses, and many have called for caution from the Bank.

Their fear is that rates will rise too quickly, slamming the brakes on the UK's economic growth, rather than slowing the rate of inflation.

The UK is not the only nation wrestling with the problems of inflation.

The European Central Bank (ECB), which sets interest rates for the members of the single European currency, raised its main borrowing cost to 4% on Wednesday.


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