Inflation to rise above target

Interest rates may need to come down bringing relief to mortgages holders and exporters after the Bank of England said that inflation looks set to exceed the Government's target rate.

Interest rates may need to come down bringing relief to mortgages holders and exporters after the Bank of England said that inflation looks set to exceed the Government's target rate.

In its quarterly inflation report, the Bank's key Monetary Policy Committee, which is responsible for setting interest rates, said the outlook was for "slightly higher" inflation than at the time of its last report in May.

The report blamed the recent fall in the value of the pound on the foreign exchanges for the rise in price pressures over the past three months.

It said the inflationary effect of the sharp fall in sterling had more than offset the recent weakening of pay pressures and the easing of growth in spending by consumers.

The MPC also warned that Chancellor Gordon Brown's £43 billion public spending bonanza could add to price pressures.

It said Government spending was "marginally higher" than announced at the time of the Budget in March as Mr Brown had allowed Whitehall departments to carry forward more underspending from previous years.