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Inflation up to 3.5%

Inflation rose once again in January to 3.5 per cent as the VAT increase took effect.

According to the Office of National Statistics, the Consumer Price Index rose to 3.5 per cent, up from 2.9 per cent in December. The ONS says this is the biggest ever leap in inflation between these two months.

It has blamed the rise in inflation partly on the increase in VAT at the start of the year from 15 per cent to 17.5 per cent.

The Retail Price Index also rose in January, up to 3.7 per cent from 2.4 per cent in December 2009. The ONS says this is due to the VAT increase as well as an increase in mortgage interest repayments.

The Bank of England forecast this latest inflation spike in its Inflation report last week. It said a peak of more than 3 per cent over this quarter would then lead to a decline to about 1 per cent in early 2011 and a rise back to 2 per cent in late 2012.

Assetz chief executive Stuart Law says: “Inflation is now way past the Government target of 2 per cent, but it is unlikely that we will see any immediate intervention by the Bank to lower this figure, as it has stated themselves repeatedly in the recent past.

“Instead, it is likely we will see a period of high inflation over the coming six months to a year as the Bank keeps the base rate low in order to help the UK economy return to a sustainable and buoyant level.”


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