Government ‘must demonstrate commitment’ after inflation rise

Business leaders in Greater Birmingham have called on the Government to demonstrate its commitment to strengthening the economy after inflation jumped to its highest level for three-and-a-half years.

Figures released by the Office for National Statistics showed the Consumer Prices Index measure of inflation rising to 2.3% in February – up from 1.9% in January. Higher food and fuel prices have been cited as major factors.

Food prices increased by 0.3% compared with the same month last year, following 31 months of falling costs.

Greater Birmingham Chambers of Commerce chief executive Paul Faulkner said given the global rise in oil prices and upward pressure exerted from the depreciation of sterling, it was inevitable that inflation would rise.

However, he said the rise was nevertheless larger than expected and would further squeeze the gap between higher prices and wage growth.

“Within this air of uncertainty, it remains to be seen how long the Bank of England can maintain record low interest rates and initial analysis from our latest Quarterly Business Report shows that local firms are increasing concerned about inflationary pressures impacting on their business output,” he said.

“In light of this, we are calling on the Government to demonstrate its commitment to strengthening the foundations of the economy by implementing an Industrial Strategy which puts infrastructure investment and tackling skills gaps at the heart of its agenda.”

Ana Galvao, a Professor of Economic Modelling and Forecasting at Warwick Business School, said: “We assign only a one in 10 chance that inflation will rise above 3% in 2017. At the moment, the inflationary outlook is not strong enough to justify an increase in interest rates by the Bank of England.

“These upward-revised forecasts reflect the pressure of the pound’s devaluation after the Brexit referendum on the cost of businesses selling to UK costumers.

“Even so, we predict that the UK economy will most likely grow between 2% and 3% through 2017 and 2018.

“Having said that, the downside risks are higher in 2018 than 2017, with a one-in-five chance that GDP growth dips below one per cent in 2018.”