BOE Sees Inflation Accelerating, Limiting Scope for Rate Cuts

The Bank of England has said that inflation will accelerate, breaching the government's 3 percent limit for "several quarters," making it harder for policy makers to cut interest rates as economic growth slows.

The bank said inflation will overshoot its central 2 percent target in two years if it cuts the benchmark rate to 4.5 percent in 2009 as analysts have predict.

Policy makers, led by Governor Mervyn King, are trying to shore up an economy threatened by the worst housing slump in more than a decade and surging food and oil prices. Inflation accelerated to 3 percent in April, the most in more than a year.

The rate on the December interest-rate futures contract rose about 7 basis points to 5.6 percent after the report was released.