The Centre for Economics and Business Research says the Bank of England should increase UK interest rates by another 0.25 per cent when its rate-setting monetary policy committee meets on Thursday.  

After 14 successive rises there are signs that inflation is at last coming under control – the latest figures are expected tomorrow – and there is less of a consensus that rates should rise for a 15th successive time.

“Core inflation and services inflation are not yet moving in the right direction which suggests that wage pressures are still feeding through into higher prices” says Cebr, which says it’s worried that a new external shock could rekindle an inflationary spiral.

Last Thursday, the European Central Bank raised rates by a further 0.25 per cent despite a gloomy economic outlook while the US Federal Reserve is expected to hold rates steady this month, benefitting both from weaker inflationary dynamics and a stronger economy.

However, Cebr is uncompromising about the UK. It says: {In the UK, inflation is still too high. Core inflation and services inflation are not yet moving in the right direction which suggests that wage pressures are still feeding through into higher prices. 

“The Bank of England should not claim victory when most of the disinflationary contributions stem from falling energy prices since the start of the year, given that domestic inflationary pressures continue unabated. The recent sharp uptick in global oil prices should be a warning – any potential new exogenous shock could quickly change the picture and reignite an inflationary spiral. 

“We therefore think that the Bank should raise interest rates again in upcoming meeting by a further 25 basis points. The Monetary Policy Committee would then have until November to evaluate if the loosening in the labour market is having the desired effect on domestic inflationary pressures.”