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March 22, 2010    

UK inflation expected to ease in February

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by Kay Murchie

The Office for National Statistics (ONS) is scheduled to announce the UK inflation rate tomorrow morning, with analysts expecting the annual rate to be around 3.1%.

Last month, the ONS reported Consumer Price Inflation (CPI) rose to a 14-month high of 3.5% in January - a figure that was expected by analysts.

The rise was driven by higher petrol costs and the effects of the reduction in the standard rate of VAT.

Bank of England Governor, Mervyn King, has already warned that inflation will rise but had to write to Chancellor, Alistair Darling, to explain why inflation had exceeded the 2% target.

However, Mr King, as well as many analysts, believe inflation will fall back sharply later this year, to below the target.

It is hope tomorrow’s figures from the ONS will reinforce that inflation is on a downward trend, attributed to lower utility prices.

Meanwhile, analysts expect Retail Price Inflation (RPI) in February to remain unchanged at 3.7%. RPI includes mortgage costs and is used as the basis for many wage deals.

In the meantime, the minutes from the Bank of England’s March meeting revealed some policy members are showing concern that inflation might not fall as quickly as they had anticipated.

The minutes said: “Members drew different inferences about how the balance of risks to inflation was evolving. Some members considered that the upside risks to inflation had increased slightly over the month; others felt that the balance of risks had not changed materially.”

According to the minutes, the MPC believes that it “was increasingly likely” that CPI inflation will “remain well above” the target over the months ahead.

It added the MPC would keep under “close review the extent to which these shocks to the price level were feeding through into inflation expectations”.

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