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Interest rates set to remain unchanged amid growing dilemma for bank

The Bank of England is expected to keep interest rates on hold next week

THE Bank of England is expected to keep interest rates on hold next week, but faces a growing dilemma over when to hike next amid mixed economic data and rising inflation fears.

Members of the Monetary Policy Committee (MPC) are expected to vote to keep rates at 0.5 per cent on Thursday, having backed away from a rise last month after growth almost ground to a halt.

The Bank has already said it wants to wait and see "how the data unfolded" over the coming months before raising rates.

Economists had said this left the door firmly open for an August rise, when the Bank's next set of quarterly forecasts are published.

But recent data showing that wage growth has stalled, as well as a mixed performance so far in the second quarter, combined with fears over resurgent inflation, have all left the Bank with a difficult decision.

Howard Archer, chief economic adviser at the EY Item Club, said: "It is currently touch and go as to whether the Bank of England raises interest rates in August or holds off until November.

"There will need to be sustained clear evidence that the UK economy has improved since the first quarter for the MPC to act."

Mr Archer is predicting the Bank will now raise rates just once in 2018 to 0.75 per cent - potentially in August or November - though he believes there will be two more in 2019 as it looks to bring rates in line with more normal levels after over 10 years at emergency lows.

Official figures revealed the Consumer Prices Index remained at 2.4 per cent in May, but it is thought inflation might edge up again over the summer as fuel costs rocket due to rising oil prices.

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