Inflation surged to 4 per cent in January – the highest rate for over two years, and double the Bank of England’s 2 per cent target.
New data showed that the rate had increased from December’s 3.7 per cent, putting further
pressure on the Bank to consider raising interest rates.
Consumer prices traditionally fall in January; however last month saw prices rise by 0.1 per cent.
The overall inflationary rise was also influenced by increasing oil prices, and the VAT increase.
Many are questioning whether the Bank of England’s stated 2 per cent inflation target is achievable
– for more than a year now, inflation has remained at least 3 per cent. This has led to some experts
doubting the central bank’s commitment to price stability, and their ability to keep inflation under
control.
The Governor of the Bank of England, Mervyn King, will publish a letter to the Chancellor of the
Exchequer today addressing the concerns over inflation.
UBS economist Amit Kara said: “The issue for the Monetary Policy Committee (MPC) is that inflation
has overshot its target for much of the last five years and many are doubting its commitment to the
inflation target.”
The MPC have steadfastly kept the Bank of England base rate at a record low of 0.5 per cent since
March of 2009. However, with increasing inflationary pressures, most analysts believe rates need to
increase, with many expecting a rise by the middle of the year.
