BANK of England policymakers yesterday gave their strongest hint yet that interest rates could reach six per cent before the end of the year.

The Bank's key quarterly inflation report - the biggest indicator on the future direction of interest rates since May - suggested that a further rate rise could be needed this autumn to bring inflation back to the Government's two per cent target within two years.

The forecast showed that the Consumer Prices Index (CPI), the official measure of inflation, is expected to remain above target in the short term as higher oil prices put upward pressure on the cost of living, even with a further increase in rates taken into account.

The Bank has been struggling to bring inflation back to target for more than a year.

In March, CPI reached 3.1 per cent, its highest level for at least a decade.

CPI has since been falling back, thanks largely to lower energy bills, but official figures for June showed that the rate of inflation had only slowed to 2.4 per cent - less than many economists were expecting.

Minutes of the Bank's August rates' meeting, when rates were kept on hold, are due out next week and are expected to shed light on the possible timing of a further rate increase.