United Kingdom interest rates set to rise as inflation hits 3%

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The Bank of England's governor Mark Carney said today that inflation would keep rising a little while longer, after it was revealed this morning that the Consumer Prices Index (CPI) hit a five-and-a-half year high of three per cent.

According to the statistics agency, the inflation growth was stimulated by rising prices for food, recreational goods, and transport costs.

Grilled by the House of Commons Treasury Select Committee, Carney stuck by the Bank of England's revised estimates that inflation would peak in October or November this year.

Asked whether the MPC had enough interest rate "room" to deal with a possible recession, the Canadian responded: "Building a war chest in interest rate terms for a potential future shock isn't staying on point in terms of the inflation target, nor is it appropriate or necessary, given that policy can move quite nimbly if required".

The BoE surprised investors last month when it said most of its rate-setters expected to increase borrowing costs "in the coming months", even though Britain's economy is growing more slowly than other European economies and uncertainties about Brexit are mounting.

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'There has been much talk of a rate hike later this year by the Bank of England, but with so many areas of weakness in the economy, and high levels of indebtedness, a rate rise could be a step too far for the Bank of England, at least until there is more clarity on Brexit, ' he said.

He said the fall in the pound since the Brexit vote was the "sole reason" behind the recent spike in inflation and would probably see it rise over 3% "in the coming weeks", meaning he will "more likely than not" be obliged to write to the Chancellor to explain why. We expect inflation to approach summit in October.

The BoE's net policy meeting is on November 2, and some analysts believe that the interest rate hike could be implemented as early as next month.

However, the British pound remained lower against the dollar despite confirmation of Carney's view on inflation.

United Kingdom inflation increased in September to the highest since early 2012, data from the Office for National Statistics showed Tuesday.