Current UK Interest Rate: 5.75%

UK Interest Rates Forecast: Rate cuts likely early in 2008

Inflation Breaches 2% Marker Again

The government's preferred CPI measure of inflation has unexpectedly risen over 2% again, following two months during which it remained below this target level.

The Bank of England's Quarterly Inflation Report showed that in October inflation reached 2.1% - mostly as a result of higher fuel and food prices.

This latest surge in inflation will discourage the Bank of England's Monetary Policy Committee from making any premature moves to cut interest rates - despite the urging of retailers and those in the property business who are seeing falling sales as a result of credit pressures and higher interest rates.

Bank of England Signals 2008 Rate Cut Likely

The Governor of the Bank of England, Mervyn King, has signalled that the Bank's base interest rate is likely to be cut early in 2008.

In comments accompanying the publication of the Bank's Quarterly Inflation Report, he said that "The near-term outlook is less benign for both inflation and growth". Most economic analysts have understood this to mean that the Bank recognises the need for interest rate cuts next year to allow both inflation and growth to have a soft landing.

Despite this, many people believe that true inflation is somewhat higher than official figures might suggest. A prime example of this is so-called 'factory gate prices' - the prices charged by manufacturers for their goods.

October saw factory gate prices rise by an average of 3.8% - the highest for 12 years and substantially above the official measure of inflation. It is factors such as this which are causing the MPC to delay rate cuts - inflation is not yet fully under control.