Bank of England must raise rates this year, OECD warns

The Telegraph reports today that The Bank of England should raise interest rates before the end of the year or risk letting inflation run out of control, the Organisation for Economic Co-operation and Development has warned.

Despite downgrading its growth forecast for the UK for the third time in six months, it said: "Normalisation of interest rates will need to start during 2011 to stave off significant increases in inflation expectations."

Inflation is running at 4.5pc, more than double the Bank's 2pc target, but has so far showed little sign of becoming embedded in wage settlements.

The OECD's comments echoed another call from Andrew Sentance to begin policy tightening urgently, in his final speech as a member of the Bank's Monetary Policy Committee (MPC).He said: "Continuing to accommodate inflation makes it more likely that a future sharp policy correction will be needed, particularly if persistent high inflation becomes embedded in wage and price-setting. That ... poses a threat to the recovery further down the track."

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