Bank of America Merrill Lynch said the Bank of England was likely to raise interest rates twice by May to curb soaring inflation, but much would depend on how high unemployment would rise after the end of the government's compulsory leave programme.

"the end of the compulsory leave plan is still key," Bank of America Corporation economist Robert Wood wrote in a report. "if all goes well, or if the Bank of England feels current inflationary pressures, it could raise interest rates as early as December and then raise rates for the second time in May next year."

The basic scenario forecast for BofA Merrill Lynch is that the UK will raise its benchmark interest rate by 15 basis points to 0.25 per cent in February instead of May. Bank of America Corporation adjusted his view after the Bank of England said on Thursday that the reasons for tightening monetary policy had strengthened.

The Bank of England also said it expected inflation to exceed 4 per cent later this year, more than double its target.

"if the end of the compulsory leave does not lead to a rise in unemployment, we see a high probability of raising interest rates in or before February," Wood wrote. "but we think it is far from certain that this will happen."

Britain's compulsory leave, the salary support scheme, ends on September 30th. The central bank expects the unemployment rate to peak below 5%.