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Inflation rise sparks rate speculation

Inflation hit 3.1 per cent in March, prompting speculation that the Bank of England will raise interest rates by a quarter point next month.

The rise in the consumer price index from 2.8 per cent in February forced governor Mervyn King to write to Chancellor Gordon Brown to explain why inflation is over a percentage point above his 2 per cent target.

Economists claim a base rate rise from 5.25 to 5.5 per cent is almost inevitable to help push inflation back below 3 per cent.

This is the first time the BoE has had to write to the Chancellor since Brown gave the bank independent control of rates in 1997. In the letter, King largely blames rising oil prices for the increase.

The pound soared on news of the inflation leap, briefly breaking the $2 mark.

Abbey chief economist Barry Naisbitt says: “Financial markets have now firmed up their view of another base rate rise next month.”

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