The Bank of England has received a boost in its fight against inflation - at least in the short term - from Prime Minister Liz Truss' huge power bill bailout, but it still looks set to raise interest rates sharply next week.

The tariff cap announced by Truss on Thursday, which is expected to cost 100 billion pounds ($116 billion) or more over two years, will allow inflation to peak by up to five percentage points below earlier forecasts, according to economists.

At 11% - the new estimate of several analysts - the high point of inflation's recent surge would be more than five times the BoE's 2% target.

That would leave policymakers still concerned about inflation expectations getting entrenched in the economy, but would be a lot less alarming than the scenario without the government's intervention.

However, the sheer scale of the support is likely to create inflation pressures further ahead as households will be thousands of pounds better off than they would otherwise have been.

To counter that, the BoE could raise rates faster and higher than previously anticipated, starting with its September policy announcement on Thursday. The decision is expected to be made on schedule despite official mourning for the death of Queen Elizabeth.

"I suspect that the size of the package is probably going to weigh on the minds of Monetary Policy Committee members," George Buckley, an economist with Nomura, said.

He predicted a half-percentage point rate rise on Sept. 15 - which would match last month's increase but would be only the second time since 1995 that Bank Rate has increased that much - with more hikes to follow.

BoE Chief Economist Huw Pill said this week the central bank would ensure government spending did not generate inflation.

James Smith at ING said the price cap cushion for household finances - plus a further boost from tax cuts promised by Truss - could mean the BoE will wait longer before reversing its rate hikes than other central banks.

"It probably means they're going to be looking at rate cuts much less urgently than the Fed or some of the other central banks which might be cutting rates by the middle of next year," Smith said.

RECESSION AVERTED?

Samuel Tombs, at consultancy Pantheon Macroeconomics, said the recession forecast by the BoE might be avoided narrowly, clearing the way for a half-percentage point rate hike next week and another in November.

That would take Bank Rate to 2.75%, its highest since 2008, where Tombs thought it would remain, a long way below bets in financial markets of more than 4%.

Philip Shaw at Investec said there was potential for the government with its stimulus push and the BoE with its rate hikes to end up pulling in different directions, raising the risk of policy confusion.

"The fact that the chancellor and the governor appear to be engaging in twice-weekly conversations is encouraging from the point of view of policy coordination," Shaw said.

New finance minister Kwasi Kwarteng and BoE Governor Andrew Bailey will meet regularly, initially twice a week, to coordinate economic support, the Treasury said on Wednesday.

Kwarteng is expected to announce an emergency budget, including tax cuts, later this month.

Also likely to push up BoE rates is the inflation-fuelling fall of the pound, which this week sank to its lowest level against the U.S. dollar since 1985, in part due to concerns about the scale of borrowing planned by Truss.

Other central banks are also raising rates aggressively to fight inflation. The European Central Bank increased its benchmark rate by 75 basis points this week, its biggest move ever.

As well raising rates, the BoE is about to start selling down the stockpile of British government bonds that it began racking up after the global financial crisis of 2007-08.

The MPC said last month it would hold a confirmatory vote in September on the start of the sales "subject to economic and market conditions being judged appropriate."

Some economists have suggested that the recent upheaval in the bond market might slow the BoE's sale plan.

($1 = 0.8630 pounds)