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Rate hike prospect sinks in

Borrowers and mortgage-holders are taking in the prospect of another rise in interest rates later this year.The Bank of England's quarterly inflation report gave a clear indication yesterday that another hike would be needed to bring inflation down to chancellor Gordon Brown's two per cent target in the next two years.With analysts concluding the report represents a clear warning to the markets of another hike, those whose loans and mortgages are tied to rate movements could face further pressure on their monthly payments.Previous predictions had suggested falling inflation after four quarter-point hikes in ten months. The Bank's inflation report indicated that sliding energy prices were contributing to overall drops in the consumer price index (CPI), seen in the decline to 2.8 per cent in May from 3.1 per cent in April.But the report also noted that another rise would be necessary, saying its projections were based on the assumption of a further hike "in line with market expectations"."The [monetary policy] committee will look through the short-run volatility to the outlook in the medium term. It is determined to meet the two per cent target, and will take whatever further action may be required to do that," the report said.

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