They're heading up

摘要

When the cost of borrowing was low-W ered last August from 4.75% to 4.5%, the City confidently expected that more cuts would follow. Instead, rates have stayed stuck since then at 4.5%. This week it became clear that the next move will be up rather than down. The Bank of England signalled tighter money in its quarterly Inflation Report, published on May 10th. Its new projections show that if rates were held at 4.5%, consumer-price inflation would stay above the government's 2% target over the next two years (see chart on next page). However, if rates rose to 4.75% within the next year, as the market expects, inflation would return to the target in the spring of 2008. The Bank looks this far ahead when deciding monetary policy because it takes a couple of years for interest-rate changes to have their full impact on inflation.