The Bank of England's Monetary Policy Committee (MPC) is widely expected to keep interest rates on hold today as concerns persist about inflation and oil prices touched a new high. Overnight, the US price of oil touched a new peak of $124 a barrel, although in the UK, Brent crude fell by 55 cents to $121.77.

The MPC will announce its decision at midday, and is forecast to keep borrowing costs at 5 per cent after cutting the interest rate by a quarter percentage point from 5.25 per cent in April.

In Europe, the European Central Bank (ECB) is also expected to keep the interest rate at 4 per cent today, to counter its own worries about inflation on the Continent.

Sterling rose by 0.4 per cent against the dollar to $1.9614 after sharp falls yesterday and gained on the euro, which fell 0.7 per cent to the day’s low of 78.22p.

Consumer Retail Index (CPI) inflation, the Government's preferred measure, is currently 2.5 per cent which is above the Bank's target of 2 per cent, buoyed by higher food and fuel prices.

While inflation is strong, and is expected to surpass 3 per cent this year which would require the Bank of England Governor, Mervyn King, to write a letter of explanation to the Chancellor Alistair Darling, other areas of the economy are slowing, in particular services and manufacturing.

Yesterday, The Times MPC predicted that interest rates would remain unchanged, but it was a knife-edge decision with five members voting in favour of a hold against four panel experts pushing for a cut.

Bronwyn Curtis, chair of the Society of Business Economists, suggested that the Bank's MPC should keep rates unchanged. “[However] there are more visible signs of weakening economic activity. I would be voting for a pre-emptive rate cut now if cost pressures weren't still rising,” she said. “The risk for the moment is that inflation expectations rise further.”

The danger of rising inflation was also highlighted by Sir Steve Robson, former Second Permanent Secretary to the Treasury, who also said that the MPC should keep rates on hold.

“Price pressures are intense and do look very troublesome. The Bank needs to focus on its mission — which is to anchor inflation,” he said.

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