BBC News Online: Business

Rates may rise, warns IMF

Governor of the Bank of England, Eddie George, may have to preside over more interest rate rises

In its latest World Economic Outlook report, the IMF predicts that inflation will rise to 2.9% by the end of the year.

And it believes further monetary tightening may be needed to curb consumer spending.

The IMF predicts inflation will fall back to 2.6% in 1999 but economic growth is also expected to slide to 2.1% next year. It warns that unless domestic demand falls sufficiently, interest rates may have to rise.

But the twice-yearly report also warns that monetary conditions would have to be relaxed if there were signs of a sharp slowdown in growth.

The IMF report says: "Striking the right balance for monetary policy in these circumstances is a difficult challenge."

The IMF's director of research Michael Mussa says there is "some expectation that over the medium term, the value of sterling probably will correct downwards against continental European currencies".