clipped from observer.guardian.co.uk

A prolonged period of higher rates would raise the risk of a hard landing in the booming housing market. E

There is already evidence that higher borrowing costs are causing pain for UK Plc. Analysis by accountants Ernst and Young shows UK firms issued 191 profit warnings in the first half of the year - 13 per cent higher than the same period a year ago. The impact of higher oil prices on inflation could be compounded by the rising costs of other commodities. World food prices, in particular, have shot up as farm land is gobbled up to grow subsidised biofuels, and droughts in Australia exacerbate shortages.

The summer energy price spike is also likely to frustrate the hopes of US investors for a confidence-boosting rate cut from the Federal Reserve over the next few months. Kona Haque, senior commodities editor at the Economist Intelligence Unit, predicts that the cost of oil will remain around $70 a barrel for the rest of the year, and throughout 2008