A recent surge in UK inflation from 2.7% to 3.1% has made future interest rate increases almost a certainty.
It is the first time the Bank of England has missed its inflation target since independence. It meant that the governor Mervyn King had to write a letter of explanation to the Chancellor Gordon Brown.
Part of the rise in inflation can be attributed to underlying factors such as rise in energy prices. However there is increasing evidence of rising demand. It is this rising consumer demand that is the major cause for concern. Therefore interest rates will need to rise to dampen consumer spending.
There are fears that higher interest rates may cause a collapse in UK house prices by the end of 2008.