UK rates set to rise again as inflationary pressures mount - CBILONDON (Thomson Financial) - Another Bank of England interest rate hike is more likely

LONDON (Thomson Financial) - Another Bank of England interest rate hike is more likely than not as inflationary pressures in the UK economy have increased over the last three months, the country's biggest business lobby group said today.

In its quarterly assessment of the UK economy, the Confederation of British Industry said rates are likely to rise to 5.75 pct this autumn to bring CPI inflation back below the 2.0 pct target by the end of 2008. The CBI reckons inflation will end 2007 at 2.2 pct, slightly higher than previously forecast.

'Though not a foregone conclusion, a further interest rate rise now seems more likely than not this autumn and we have built this into our forecast,' said Ian McCafferty, the CBI's chief economic adviser.

'Recent oil price rises, unexpected and sharp increases in food costs, higher-than-expected import prices and businesses rebuilding profit margins after last year's squeeze have all added to inflationary pressures,' he added.

Sterling markets are currently predicting that the BoE will raise its key repo rate to 6.00 pct by the end of year as it seeks to rein in inflationary expectations and clamp down on pricing pressures among firms.

McCafferty said the quarter point hike is likely to be reversed by the end of 2008 as higher borrowing costs mean slightly weaker economic growth.

On growth, the CBI kept its forecast for 2007 unchanged at 2.9 pct but has cut next year's prediction to 2.4 pct from 2.6 pct.

'The economy will still enjoy above trend growth this year, with consumer spending remaining robust until the full effect of higher rates is felt later this year,' said McCafferty.

Elsewhere, the CBI said continued strong economic growth internationally, combined with a slight depreciation in the pound, will help exporters in 2008. As a result, the CBI expects net trade to become a positive contributor to GDP for the first time since 2005.

Meanwhile, it reckons unemployment will continue to fall, from 1.68 mln in 2006 to 1.65 mln this year and 1.60 mln in 2008.