Inflation surge prompts Governor to write letter to Chancellor

| February 15, 2011
’Inflation

The Office for National Statistics (ONS) today announced Consumer Price Inflation (CPI) rose to an annual rate of 4% in January – the highest rate since November 2008.

The latest figures takes inflation to double the target of 2% – where it has been for more than a year.

The latest figure prompted Governor of the Bank of England, Mervyn King, to write a letter to Chancellor George Osborne to explain why inflation remains above target.

Mr King warned that inflation could remain high for the next two to three years and forced him to acknowledge that interest rates may have to rise quicker than previously anticipated.

According to the Governor, inflationary pressures are arising from either external forces such as commodity prices, or temporary domestic factors such as the recent VAT hike.

The CPI inflation rate is a benchmark for the Bank’s Monetary Policy Committee but only one or two members have voted for interest rates to be lifted from their current historic low to bring inflation down.

Last week, the Bank again opted to keep interest rates at the record low of 0.5% suggesting that the economy is still too fragile to lift rates.

Meanwhile, today’s CPI figures will be worrying for families who will certainly be financially squeezed.

The typical salary will rise by little more than 2% – unable to match the spiralling cost of living.

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