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UK interest rates held steady despite inflation risk

UK interest rates held steady despite inflation risk
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Despite rising inflation, Britain’s central bank has kept its key interest rate at a record low 0.5 percent. Critics have accused the Bank of England of ignoring its mandate to counter inflation.

The Bank’s Governor Mervyn King has warned inflation could rise as high as five percent in the coming months, but he believes this is temporary and it will be back on target by early next year.

Although inflation has hit almost twice the Bank’s target of around two percent, Britain’s economic growth will be held back this year by tax rises and public spending cuts.

Shock data last month showed the UK economy contracted in the final three months of 2010.

However, a recent surge in price pressures means investors are convinced the Bank will be forced to raise rates before long. Most are betting on a quarter-point rise in May, and at least one more before the end of the year.

There are differences within the BoE’s monetary policy committee. Two members, Andrew Sentance and newcomer Martin Weale, voted for an immediate quarter-point interest rate rise in January.

A breakdown of this month’s vote will be published on February 23 and looks certain to show a heated exchange of views.