LON­DON-New Bank of Eng­land fore­casts opened the door yes­ter­day for in­ter­est rates to rise slow­ly in Britain but Gov­er­nor Mervyn King warned against jump­ing to con­clu­sions about when the cen­tral bank would pull the trig­ger. The Bank's quar­ter­ly in­fla­tion re­port sug­gest­ed ex­pec­ta­tions it will start hik­ing rates soon from a record low 0.5 per cent were not far off the mark, giv­en that in­fla­tion is dou­ble its two per cent tar­get and like­ly to climb fur­ther. How­ev­er, there are big di­vi­sions on the nine-mem­ber Mon­e­tary Pol­i­cy Com­mit­tee (MPC) and King, strik­ing a dis­tinct­ly more dovish tone, said the out­look for the econ­o­my and in­fla­tion re­mained high­ly un­cer­tain and hard to pre­dict.

"Some peo­ple are run­ning ahead of them­selves and say­ing that we are pre-an­nounc­ing or lay­ing the ground for a rate rise. That de­ci­sion has not been tak­en and won't be tak­en un­til we get to the next meet­ing or the fol­low­ing meet­ing, or it may be many quar­ters," he said. The pound fell and in­ter­est rate fu­tures ral­lied af­ter the re­port was pub­lished as some in­vestors had priced in a more hawk­ish out­look for mon­e­tary pol­i­cy fol­low­ing da­ta this week which showed in­fla­tion shot up to four per cent in Jan­u­ary. How­ev­er, an­a­lysts still ex­pect a steady tight­en­ing of pol­i­cy as long as Britain's fledg­ling re­cov­ery takes root.

"There is a strong pos­si­bil­i­ty of a rise in in­ter­est rates in the mid­dle part of this year," said James Knight­ley, econ­o­mist at ING. "That said, giv­en our con­cerns on the growth sto­ry we still be­lieve that rates will not rise as much as the mar­ket an­tic­i­pates." Mar­kets have been pric­ing in a first rate rise in May.

King re­ject­ed fears the BoE could lose cred­i­bil­i­ty if it did not act soon to cool price pres­sures, an ar­gu­ment of­ten put for­ward by MPC hawk An­drew Sen­tance.

In­fla­tion has been above tar­get for a whole year, lead­ing some econ­o­mists to ques­tion the BoE's in­fla­tion-fight­ing zeal. King said the Bank was bound to raise rates at some point, but on­ly if the econ­o­my was strong enough to bear it. "We're not in the busi­ness of fu­tile ges­tures, we're in the busi­ness of try­ing to make a dis­pas­sion­ate analy­sis of the bal­ance of risks to in­fla­tion in the medi­um term," he said. (Reuters)