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February 10, 2010    

Official rate of inflation hits 2.9%

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by Gill Montia
Official rate of inflation hits 2.9%

The UK’s official rate of inflation increased to 2.9% in December 2009, up from just 1.1% three months earlier.

The rise was driven by higher petrol costs and the effects of the reduction in the standard rate of VAT a year earlier dropping out of the twelve-month comparison.

In it quarterly inflation report, the Bank of England is predicting further rises in the months ahead “reflecting the continuing impact of sterling’s depreciation and the restoration of the VAT rate to 17.5%”.

However, while prepared for a 3.5% peak, Bank of England governor, Mervyn King, believes inflation will fall back sharply later this year, to below the Government’s 2% target.

Mr King is also hopeful that economic growth lies ahead, although pre credit-crisis levels of growth are unlikely to return for “a considerable period”.

The Bank’s inflation report describes the strength of the recovery as “highly uncertain” and warns that credit conditions are likely to remain “restrictive” for some time.

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