THE Bank of England has received a warning that interest rates may have to rise faster to counter increased oil prices as it prepares to make an announcement on rates today.

Researchers say that if oil prices remain above $42 a barrel, the bank would have no option but to tighten monetary policy to keep inflation under control.

The research by the National Institute of Economic and Social Research (NIESR) comes after fears about the impact of a permanent rise in oil prices on the UK economy after the cost of crude reached a record high of $49.40 a barrel in New York last month.

Although they have slipped back since then, prices have remained at about $43 a barrel and could climb again as demand for oil builds during winter.

The NIESR said higher oil prices reduce growth and raise costs, contributing to the build-up of inflationary pressures in the economy.

Much depends on whether the increase in oil prices has been driven by temporary factors, such as supply disruptions in key oil producing nations.

Ray Barrell, senior research fellow at NIESR and co-author of the research, said the recent spike in the oil price was driven largely by supply disruptions.

Mr Barrell said permanent factors, such as rising demand in China and India, meant that the price of crude was unlikely to fall much below $36 a barrel.