The Bank of England Inflation Report, due out tomorrow, is likely to be hawkish in tone, perhaps preparing the ground for another interest rate rise next month, analysts said yesterday. However, it is possible that the report will hint that the bank is happy with borrowing costs at 6.0 per cent for now, even while it accepts that inflation is more likely than not to rise, they added.

This approach would be the cue for another month of uncertainty in financial markets as each piece of evidence is assessed for its inflationary implications.

"After the rather balanced views presented in the May Inflation Report, it would be no surprise to see the bank adjusting to a more optimistic growth outlook and pointing to some upwards risks to inflation," said CIBC World Markets economist Ms Audrey Childe-Freeman. "The bank may also hint that interest rates may have to be increased again."

The bank's Monetary Policy Committee (MPC) kept interest rates steady for the sixth month in a row last week at 6.0 per cent. That decision threw the spotlight firmly on tomorrow's report, which sets out the central bank's current thinking on growth prospects and inflationary pressures in the British economy.

Aside from saying that risks to inflation remain on the upside, there are two other possible scenarios that could be played out in the report.

Firstly, the MPC could signal that it is relaxed over the medium-term outlook for inflation, suggesting rates will stay where they are for the foreseeable future.

Secondly, it could suggest that it was tempted to raise rates this month, but felt the market was unprepared and that such a move could have forced sterling higher against the euro.

The latter scenario would almost certainly herald a further rate rise in September, taking some of the uncertainty out of the monetary policy equation.