While financial markets expect a number of interest rate increases throughout this year and into 2012 taking the cash rate beyond 2%, Legal & General Investment Management (LGIM) believes this is higher than the MPC will go.

LGIM economist Tim Drayson says the Bank of England Monetary Policy Committee (MPC) has a difficult choice to make between helping promote economic growth, or acting to curb inflation. He says the Bank of England may see its creditability under threat with inflation trending above 4%. This is double its target of 2% and therefore a couple of interest rate rises are possible over the next two quarters.

Drayson said: “The full effect of government cut-backs are only starting to feed through to a struggling UK economy