Inflation hits 3.7%
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The Consumer Price Index rose to 3.7 per cent in April, according to the Office of National Statistics.
The latest inflation figures mean Bank of England governor Mervyn King will have to write his first letter to Chancellor George Osborne to explain why inflation is almost double the 2 per cent target.
Inflation rose to 3.5 per cent in January, then 3 per cent in February and then up to 3.4 per cent in March.This is the highest point inflation has reached since the end of 2008.
In his latest Inflation Report, King admitted inflation would stay above target through 2010, but said the economy would improve in the first months of 2011 and inflation would fall back to target.
The Retail Price Index rose to 5.3 per cent, up from 4.4 per cent in March, it’s highest point since 1991.
Schroders European economist Azad Zangana says continuing high inflation coupled with expectations of a VAT increase may force the Monetary Policy Committee to increase rates before the end of the year.
He says: “This morning’s inflation release can only be described as terrible and will come as a blow for the Bank of England, which has continued to talk down inflation fears pointing to significant slack in the economy.
“This release will sound alarm bells for the hawks on the MPC, who have recently voiced their concerns about the risks of higher inflation feeding through to higher inflation expectations.”
In his letter to the Chancellor, King reiterated his belief that inflation would fall by the end of the year and says he does not expect rate increases until after Q1 2011.
In his response to the letter, Osborne said he would welcome King’s views with regard to adding the cost of housing into future calculations.
Barclays Capital analyst Simon Hayes says while this change might not come in the short-term, it may mean an eventual increase in the CPI target to 2.5 per cent.
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Readers' comments (12)
Anonymous | 18 May 2010 10:31 am
about time savers got a break rather than borrowers and interest rates rose?
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John Lacy | 18 May 2010 10:35 am
Yet another legacy problem from Gordon and his merry men!
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Anonymous | 18 May 2010 10:39 am
Any rise in VAT will of course send this even higher.
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Ian A | 18 May 2010 10:50 am
'Yet another legacy problem from Gordon and his merry men!'
You cannot blame the current economic situation on the previous administration because you did not like thier politics. We would probably be in the same situation had the boy Osborne been in charge. Can we get away from the politics its repetitive tedious and boring. And not every IFA is a tory!!
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Anonymous | 18 May 2010 10:58 am
I love all the people that blame Labour. Well done for voting tory you idiots. Let's rejoyce when they announce they are keeping the FSA, raising capital gains to 40% and when they put us back into recession again at a point where the mortgage market and property market is recovering.
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Ken C | 18 May 2010 10:58 am
Price of petrol is one of the culprits of higher inflation - How much Duty and VAT goes to the government but do they really care???
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Derek Hallas | 18 May 2010 11:00 am
Dont be fooled! Oil prices, food and utilities are not in touch with reality and bleeding us dry. House prices are recovering but for interest rates to rise would burn everything that is beginning to show a little sign of stability. Ignore inflation until next year.
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Steve Laird | 18 May 2010 11:04 am
There's now only one savings account in the UK (that I'm aware of) which will offer an above inflation return after tax (4%). Given that it requires a client to tie up their money for five years (unless they want to pay 6 months interest as a penalty) this highlights the need and the opportunity for advisers to make a real difference to their clients.
The RPI figure is pretty scary - and hence a greater challenge!
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Anonymous | 18 May 2010 11:17 am
Most sensible IFAs are though!
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Anonymous | 18 May 2010 11:55 am
You have to feel sorry for Labour supporters! How can anyone of sound mind still believe that those out-of-touch, socialist, union-reliant megalomaniacs, Brown, Darling and their Labour cronies, have any idea at all how to run an economy...?
Belief in Labour's "efforts" (for the want of a truer word) over the last 13 years brings into question their supporters' grasp on reality!
Labour was successful in just one area - completely transforming the UK ... into another third-world country!
FINALLY, the electorate woke up!!!
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