Inflation ‘could rise to 5 per cent’: King
Feb 15 2011
Inflation reaches 4 per cent in January but the Monetary Policy Committee warns it could rise to 5 per cent this year
The Consumer Prices Index (CPI) annual inflation rate rose to 4 per cent in January, up from 3.7 per cent in December, and double the 2 per cent target.
The Office for National Statistics (ONS) attributed the escalating rate of inflation to the VAT increase to 20 per cent and the rising price of crude oil, which saw petrol reach a record £1.27 per litre in January.
In a letter to the government, Mervyn King, head of the Bank of England’s Monetary Policy Committee (MPC), warns that the rate of inflation could rise to 5 per cent in the coming months as it remains above target this year, prior to falling back in 2012.
Earlier this month, the MPC maintained interest rates at 0.5 per cent, despite coming under pressure to respond to inflation by raising the rate of interest.
Analysts predicted that inflation would reach 4 per cent in January, although there was ‘some relief in the markets that the outcome was not worse’, according to David Kern, chief economist at the British Chambers of Commerce (BCC).
The BCC stands by its argument that interest rates should be kept at the current level so as not to put the economic recovery at risk.
‘Raising interest rates at a time when fiscal policy is being tightened will heighten pressures facing businesses and individuals,’ says Kern.
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