Hopes of future rate cuts dashed as inflation reaches 4.4%

Official figures have revealed that the UK’s annual rate of inflation has surged to a record high of 4.4% in July. Inflation is now at its highest level since current records began in 1997.

The figure is up from 3.8% in June and is more than double the Government’s target of 2% and above analysts’ forecast of 4.2%.

The rise in the Consumer Prices Index (CPI) was also higher than expected, with food prices up a record 13.7% on the year, primarily due to surging meat prices, in particular bacon, pork and poultry.

Meanwhile, soaring petrol prices have fuelled inflation as the data was collected prior to the recent fall in oil prices.

Furthermore, the Retail Price Index (RPI) measure of inflation, which includes housing costs, rose from 4.6% in June to 5% and represents the highest for almost 20 years.

Last week, the Bank of England’s Monetary Policy Committee (MPC) opted to keep UK interest rates on hold at 5% as it battles with a slowing economy and runaway inflation.

Hopes of an interest cut in the future are low as the Bank will face an even tougher decision as inflation rises even further.

Philip Shaw, Investec chief economist, said some members of the Monetary Policy Committee will vote for higher rates but we doubt they will reach a majority.

Yesterday, a survey of 1,200 British companies, carried out by KPMG and the Chartered Institute of Personal Development (CIPD), revealed that less than a third plan to recruit staff between July and September, compared with 37% in the period April to June.

Furthermore, the number of employers planning redundancies has risen from 22% to 27% over the same period.

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