Bank Of England Will Likely Keep Interest Rate With 4.7 Percent Inflation Rate In August

London, England (AHN) - The United Kingdom's inflation rate hit a 16-year high of 4.7 percent in August. The 0.3 percent rise from July's 4.4 percent was mainly caused by higher energy prices.

With the escalating Consumer Prices Index, the Bank of England will likely continue to maintain interest rates next month. Howard Archer, chief U.K. economist of Global Insight, said if inflation rate would dip to target of 2 percent by the end of 2009, the Bank of England will be able to cut interest rates to 3.4 percent next year, regardless if it will make any rate reductions this year or early next year.

With oil prices falling in the world market, Bank of England Governor Mervyn King said inflation was close to reaching its peak of 5 percent and it would likely fall, but probably above the government's target of 2 percent.

In a letter to British Chancellor Alistair Darling, King wrote, "The monetary policy committee still expects inflation to fall back sharply in 2009 and to fall back to target thereafter."

He explained the recent weakness of the British economy, characterized by a zero percent gross domestic product growth rate for the second quarter of 2008, will help dampen pressure on salaries and prices.