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OECD expects UK interest rates to rise 3.5%

The OECD has issued a very challenging report about the UK economy and the "threat of inflation" which is causing concern amongst UK investors and analysts. The OECD believes that UK base rates will need to rise from 0.5% at the moment to 3.5% by the end of 2011 to combat the threat of inflation which has increased significantly over the last few months. This summary of the UK economy would appear to be at odds with the Bank of England.

The Bank of England has for many months now suggested that we would see a short-term spike in inflation but this would weaken in the latter part of 2010. However, the very fact that UK inflation does not seem to be weakening at the moment is starting to sound a number of alarm bells. We are not in a situation where we need to panic as yet but the inflation rate of 3.7% is well above the Bank of England's long-term target of 2% and significantly up over the last few months.

The problem appears to be that there are so many elements of inflation which are out of the control of the Bank of England and the UK government. It would seem that these unknown elements are causing a number of very different opinions on the outlook for the UK economy.

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