By FWi staff

THE Bank of England may be forced to raise interest rates if the UK is to meet its inflation target of 2.5%. That is the stark news from the latest World Economic Outlook report, published today by the International Monetary Fund.

The IMF report forecasts that inflation will hit 2.9% by the end of this year. The prediction lends credence to Chancellor Gordon Browns budget statement that inflation could peak at 3% before falling back to 2.5% during 1999.

The twice-yearly report warns that “striking the right balance for monetary policy in these circumstances is a difficult challenge.” But unless domestic consumer demand falls soon, interest rates may have to rise, it concludes.