Bank of England Banks on Inflation

The Bank of England finally declares a hike in the interest rate at 5.42% which is the highest since September 11, 2001 terror attacks in the US, though it was all a predetermined step to move forward with the decision. The reason being simple, inflation in Britain's buoyant economy.

The bank's monetary policy committee which is responsible for the uproar, had something similar to show in the recent history, when it also announced a quarter of a percentage point rise in the August.

Technically speaking, the rise basically, had been due to two aspects, the out powering expansion of housing industry and of course the roaring success of outsourcing cheap labors from south-east asian countries, such as India and China, which itself is increasing the workforce and its dependent cost of living.

Though the annual rise in house prices is a long way down from the levels of three years ago, it is running around 8 per cent a year which is double the increase in average earnings. So every year housing becomes less affordable. Were the housing market to be down to the earth, then maybe growth in retail sales would come back further. The reason being, the overhyped interest to safeguard a living in Britain. This is making it tough for the Bank of England to hold its horses against inflation.

The workforce which is attaining a reasonable importance in the inflation curve is due to the demand of increment by the people , for the wages. Even the big-guns such as Adidas had to agree upon the increnment policies and go for it. Thus it seems, that with a better purchasing power, it wont be that bad for the mass to handle inflation at its all time peak.

Analysts said the quarterly economic projections are expected to show growth remaining relatively buoyant and inflation at or above target at a two-year horizon if rates were left unchanged at 5.00 pct, even though the pound has risen by 2.5 pct since the August forecast round.

Most analysts think today's hike is likely to be the last in the present cycle, especially if the US growth slowdown becomes more pronounced and evident in the UK economic dataflow.

Eminent economist Michael Saunders reckons that the upcoming Inflation Report will signal that a further rate rise will be needed in the first quarter to keep inflation on target, which is indeed a feasible futuristic prediction.