Soaring inflation 'may push up rates again'

Homeowners were today warned of further rises in interest rates as the Bank of England said inflation would soar in coming months.

By this summer inflation is forecast to have risen above the Government's two per cent target to about 2.3 per cent. The Bank said spiralling oil prices were a "key risk" in the short-term.

Inflation is currently at 1.1 per cent and has been below target for more than five years. The Bank's monetary policy committee sets interest rates in order to hit the inflation target two years ahead. It lifted the cost of borrowing by a quarter-point to 4.25 per cent last Thursday - the third such move in seven months.

E c o nomist Adam Chester at Halifax said: "The report is consistent with the idea that the Bank has more work to do raising interest rates." Experts expect a rise in August, but it has not been ruled out in July.

Today's report also predicted that house price inflation would "slow sharply" in the next two years but played down the prospect of a Nineties-style crash.