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Inflation hits 4% in January

Consumer prices index inflation hit 4 per cent in January, up from 3.7 per cent in December, according to the Office for National Statistics

The ONS cited the price of crude oil and the rise in VAT as the two main factors behind the move, which puts inflation well above the Bank of England’s target.

The retail prices index also rose to 5.1 per cent from 4.7 per cent in December. The ONS said the factors influencing the move in CPI also applied to RPI inflation.

The move may heap further pressure on the Bank of England to raise interest rates and tighten monetary policy.

However, the Bank could argue that the Government is tightening fiscal policy by cutting spending this year, meaning a rate rise could have a counterproductive effect.

The price of crude oil is to a large extent determined internationally, meaning interest rate rises could have less of an effect.

The rise in VAT would also remain unaffected by a rise in interest rates, which would put pressure on indebted household finances.


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