The Bank of England governor warns that the cost of borrowing will increase if rising prices continue.
Governor Mervyn King’s warning is the strongest indication yet that more interest rate hikes are on the way.
Although the official level of inflation fell this morning, Mr King observed that the situation for some homeowners looks bleak, with mortgages now at their least affordable level for 15 years.
The bank chief told the Welsh CBI there was a list of worrying inflationary pressures which remained “elevated” and may lead to action by the Bank’s Monetary Policy Committee.
“If these indicators remain elevated, the MPC may need to take further action,” he said.
With it becoming ever easier for householders to borrow from banks, Mr King also warned householders about variable rate borrowing.
He said: “Obvious though the point may seem, it is unwise to borrow so much that the repayments are affordable only if interest rates remain at their initial levels.”
Interest rates to rise again?