Energy bill hikes will speed up inflation rate
According to Spencer Dale, the Bank of England’s chief economist, UK inflation is set to accelerate due to soaring energy bills.
The latest figures from the Office for National Statistics (ONS) revealed UK Consumer Price Inflation (CPI) rose to annual rate of 4.5% in August from July’s rate of 4.4% – more than double the 2% target.
Higher inflation continues to be led by rising food costs but the main reason behind last month’s rise was a 5.1% annual increase in the housing, water, electricity and gas component – which rose the most in more than two years.
Utility companies recently hiked their prices – some by almost 20%.
The Bank of England has previously warned that inflation could reach 5% later this year but Mr Dale, who is also a member of the Bank’s Monetary Policy Committee (MPC), said households will be financially squeezed even further this autumn as energy bills surge.
A recent study by supermarket giant Asda warned that households are already £728 a year worse off than they were this time last year due to soaring living costs and in an interview with the Daily Mail, Mr Dale said families should be prepared for further hardship in the next few months.
Mr Dale warned that inflation could exceed the 5% mark and should it rise to 5.5%, it would represent the highest level since 1992.
However, he is predicting that inflation will fall “very sharply” next year, while the Bank of England has previously reiterated that inflation will fall back to its target by 2013.
For several months, Mr Dale voted for interest rates to be lifted from their historic low of 0.5% in an effort to tame stubbornly high inflation but in July, he joined his fellow Committee Members by opting to keep rates low as the UK economic recovery appeared to be losing momentum.