UK Inflation Rises To 4PC

Rising Inflation

Rising Inflation

Inflation in the UK managed to double the Bank of England’s target in January, increasing pressure on its policymakers to increase interest rates. The increase in VAT to 20pc and rising oil prices both played their part in the jump of inflation in January.

The official figures of how fast inflation is rising, the consumer prices index (CPI), climbed 4pc in the year to January, up from 3.7pc the previous month.

According to the Office for National Statistics, the pace of price rises was the highest in more than two years.

The latest rate, which was correctly estimated by economists, also signals that CPI inflation has been at least a percentage point above the Bank of England’s 2pc target since November 2009.

“This is another kick in the teeth on the inflation front for the Bank of England, albeit slightly less hard than some had feared,” said Howard Archer, UK economist at IHS Global Insight.

“It maintains pressure on the Bank to retaliate by raising interest rates sooner rather than later,” added Mr Archer.

Economists are now expecting the Bank to raise interest rates from their record low of 0.5pc late in the year, but investors are betting a rise will come significantly earlier, estimating a rise by May.

James Knightley, of ING Bank, said all eyes are now firmly focused the Bank’s quarterly inflation report . The report will be published on Wednesday, where it will update its forecasts for growth and prices.

“The general tone of the report and the accompanying press briefing will give us a much better idea as to whether the market fully pricing in a rate hike by May is realistic,” he said.

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