UK Inflation Rate Rises To 4.4%

22/03/2011

The UK Consumer Prices Index (CPI) annual rate of inflation has risen to 4.4% – up from 4% in January.

This was due to higher food, fuel and clothing costs and is the highest level for more than two years. Retail Prices Index (RPI) inflation (which includes mortgage interest payments) rose to 5.5% from 5.1% in January – the highest rate for 20 years.

The CPI measure has now been one percentage point or more above the 2% target for 15 months (and is the highest since October 2008), and will put pressure on the Bank of England to lift interest rates to curb accelerating inflation.

According to the Office of National Statistics the largest inflationary pressures came from clothing and footwear which rose by 3.6% following the January sales, with transport costs pushed up by a 1.4% increase in pump prices, following rises in the price of crude oil. However, alcohol prices fell by 1.1% – a record monthly fall. Spirits fell by 5.8%.

The overall increase in CPI to 4.4% was more than forecast by economists, putting the Bank of England under pressure to demonstrate its commitment to hitting its inflation target by increasing interest rates and bringing the rate of inflation under control.

However the British Chambers of Commerce (BCC) urged the Bank of England to remain cautious.

“The MPC must be careful before it takes action that may threaten the fragile recovery, particularly in the face of a tough austerity plan,” said David Kern, BCC chief economist.

“It is likely that the MPC will look to restore its credibility and so we can expect interest rates to be raised in the next few months. However we urge the Committee to move cautiously, and avoid premature measures that may cause an economic setback.” he added.

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Written by Charles Browning | Associate Director

Charlie joined Mantle Financial Planning in 2000 following a number of years with the Prudential. Read more >>

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