If homeowners have been remortgaging to try and beat an interest rate increase then they have most likely made a smart move. Those that have been unsure of a change will want to reconsider after the latest statements from the Governor of the Bank of England. Governor Mervyn King in his letter to the Chancellor to address inflation has opened the path for the regulators to make an increase soon.

In his letter which is required when inflation stays above the government’s goal level of 2.0 per cent the Governor explained that there were temporary factors at play causing the increase in the cost of living. The increase in VAT, high food prices and the increase of oil and energy prices were all having an impact on inflation. He also stated that inflation would be inline with the goal of 2 per cent in two to three years if the "bank rate increases in line with market expectations".

"The Governor's letter seems to endorse market pricing for the Monetary Policy Committee to hike soon," said Citigroup economist Michael Saunders.

Analysts interpret this to mean that there could be more than one increase by the end of the year. The money markets are pricing rates to be at 1.25 per cent by the end of the year.

Simon Hayes, economist at Barclays Capital stated in reference to the letter: "That said, most Monetary Policy Committee members have clearly become more worried about the damage to credibility that is being wrought by the persistent overshooting of the inflation target."

"In that case, the report will provide a vehicle to prepare financial markets, firms and households for a rate hike, probably within the next few months."