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November 16, 2010    

UK inflation rises to 3.2% in October

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by Kay Murchie

The Office for National Statistics (ONS) has today announced Consumer Price Inflation (CPI) rose to an annual rate of 3.2% in October, up from 3.1% in September.

The latest figure represents the eleventh consecutive month that inflation has been above the target of 2% and will prompt the Governor of the Bank of England, Mervyn King, to write a letter to Chancellor George Osborne (his fourth this year) to explain why inflation remains above target.

Meanwhile, toady’s figure surprised analysts who had expected CPI to hold steady at 3.1%.

Presenting the Bank’s Quarterly Inflation Report last week, Mr King said inflation could rise above 3.5%, due to the decision to hike VAT to 20% next year.

However, the Bank expects inflation to fall below the 2% target by early 2012.

On a monthly basis, meanwhile, consumer prices rose 0.3% - marginally higher than the 0.2% which was widely expected.

The rise was attributed to higher petrol costs and a surge in the price of computer games.

Meanwhile, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, fell to 4.5% in October, from 4.6% in September.

Inflation has remained stubbornly high over recent months and at the last four interest rate meetings, policymaker Andrew Sentance voted for rates to be lifted from their current historic low of 0.5% – where they have been since March 2009.

The CPI inflation rate is a benchmark for the Bank of England’s Monetary Policy Committee (MPC) but the Bank has already noted that inflation has remained more persistent than it had expected but a hike in interest rates are not required at this time.

However, Mr Sentance has previously warned that the Bank faces losing its credibility if it is not seen to be fighting inflation.

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