United Kingdom interest rates set to rise as inflation hits 3 percent

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If it had risen any further, Carney would have had to write to Treasury chief Philip Hammond explaining why inflation is more than a percentage point above the 2 percent target and what he and his colleagues at the central bank were going to do about it.

The governor would not be drawn on the likelihood of interest rates rising in November, but said the challenge the central bank faces is to strike a balance between putting rates up to ease inflationary pressure in the economy, and keeping monetary policy loose to aide the economy in times of economic strife. The increase, which brings the rate to its highest level since March 2012, was widely anticipated in the markets and was largely due to rising prices for food and a range of transport costs.

Victoria Clarke, an economist with Investec, said she was surprised that Ramsden had come out strongly against the majority view in favour of a rate hike soon, but that that was countered by Tenreyro's positioning close to the majority view.

On a monthly basis, inflation climbed 0.3%, after climbing 0.6% in the previous month.

According to data released by the Office for National Statistics (ONS) on Tuesday (17 October), inflation as measured by the Consumer Price Index (CPI) rose 3% year-on-year last month, compared with the 2.9% growth recorded in September and in line with analysts' expectations. The pound was little changed by the inflation numbers as most investors have already priced in a likely November rate hike.

"I think it's more likely than not that I will be writing on behalf of the MPC a letter to the chancellor", Carney said.

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One of the main reasons why inflation has spiked over the past year is related to the pound's sharp fall since the country voted to leave the European Union in June 2016. In the meantime, underlying price pressures continued to be sticky, with the "core" rate, which strips energy, food, alcohol, and tobacco, stayed the same at 2.7 percent in September.

Higher inflation also raises the chance of policymakers hiking interest rates next month, which in turn tends to strengthen a currency.

However, the British pound remained lower against the dollar despite confirmation of Carney's view on inflation.

Also, there is a belief that the bank will lose credibility if once again it puts the market on notice for a rate hike and fails to deliver.

The latest report is in line with the forecast issued by the BoE in August, when it said it expected CPI inflation to peak at 3% in October this year.

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