labels: economy - general
Bank of England to raise base lending rate to 5.75 per centnews
23 May 2007

Mumbai: Bank of England proposes to raise the benchmark interest rate by a quarter- point to 5.75 per cent this month in a bid to raise borrowing costs that may be needed to contain inflation.

``The committee agreed that, should the economy continue to develop broadly in line with the central expectation, bank rate could be raised further as necessary,'''' BoE''s nine-member monetary policy committee said in the minutes of a meeting published in London.

Bank of England had raised the base rate to 5.5 per cent, a six-year high, in August last year.

The central bank''s view that higher borrowing costs may be needed to bring inflation back to the 2 per cent target also cements expectations of further increases in bank rate.

Governor Mervyn King said last week that companies might have more room to raise prices now, which could lead to faster wage growth and trigger an inflationary spiral.

The implied rate on the September interest-rate futures contract rose 0.03 percentage points to 6.02 per cent in early London trade.

The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade.

The pound rose about 0.2 per cent to $1.9756, but was still lower than the level of $2.0133 reached on April 18.

The proposed rate increase would be the fourth since the start of August. At 5.5 per cent, Britain''s key rate is higher than the 5.25 per cent in the US. The European Central Bank kept its benchmark rate at 3.75 per cent this month. Canada''s main rate is 4.25 per cent and Japan''s is 0.5 per cent.

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Bank of England to raise base lending rate to 5.75 per cent