Economic growth is likely to dip from next year following recent hikes in interest rates, the bank of England forecast yesterday.

Growth is currently at the strongest annual rate for four years but the Bank said it was likely GDP would fall below trend from next year as past rate rises, including a hike to 4.75% last week, help dampen domestic demand and keep a lid on expansion.

But back-to-back rises in the cost of borrowing appear unlikely after the Bank indicated that interest rates may be nearing their peak.

A reassuring quarterly Bank report showed inflation on course to hit its 2% target in two years' time and expressed the hope that house prices were finally moderating after a long period of strong gains.

Five rate rises since November have helped keep economic growth under control, although Bank governor Mervyn King warned there were many factors that could derail the forecasts, which were based on the City's own expectations for interest rates.

The consumer prices measure of inflation dipped by 0.2% to 1.4% and could yet fall further in the near term before edging up to 2%, the Bank said.

The report led economists to rule out a September rate rise, with most eyeing an increase in November and the cycle peaking at 5.25% in early 2005.

Thursday August 12, 2004