Rates will have to rise, says bank chief

FAMILIES should prepare themselves for interest rate rises over the next two years, the Bank of England's chief economist has warned.

Spencer Dale, one of nine members of the bank's monetary policy committee which sets interest rates, also expressed concern about the strength of any economic recovery.

He voted earlier this month for a 0.25 per cent rise in rates, but six members voted to hold rates at their historic low level of 0.5 per cent.

Dale's comments mark the first time the bank has given guidance to homeowners trying to decide whether to sign fixed interest rate or tracker rate mortgages.

"I'm not particularly happy about voting to raise interest rates and doing it for nasty reasons", he said.

"I don't take lightly the impact this could have on some families. But I think the cost to our economy as a whole - were inflation to persist for longer and our credibility start to be eroded - would be even worse."

The Bank of England made the decision to hold interest rates at 0.5 per cent before official figures showed the consumer prices index, the government's preferred measure of inflation, had risen to 4.5 per cent last month, the highest level in over two years.

Dale added: "I'm not at all confident that the recovery has taken hold and will definitely power away... however, I'm even more worried about what's going on in terms of inflation."