Interest rate concern as inflation rises

THE Monetary Policy Committee has been urged to maintain its stance on interest rates despite new inflation figures showing the CPI rate had increased to 4.5%.

Clothing and footwear, electricity and gas bills and household goods were identified as the main drivers behind the increase in August’s figure.

Coverage of the inflation figures is brought to TheBusinessDesk.com’s readers in association with stockbrokers Redmayne-Bentley.

Tim Whitehead, from Redmayne-Bentley, said the rise in CPI was broadly in line with market expectations.

He said: “Fuel prices were 17% higher over the past 12 months but analysts expect a gradual weakening in commodity costs as fears intensify over the rate of global growth. 

“The Bank of England anticipates that CPI will move toward 5% before the end of the year.  Interest rates are not likely to increase, however, as these could further undermine an already fragile economy.”

The increase in CPI inflation was accompanied by a jump in the RPI figure from 5% to 5.2% in August.

David Kern, chief economist at the British Chambers of Commerce, said: “The worsening prospects for global growth will reinforce the downward pressures on energy and commodity prices. The factors pushing up UK inflation are mostly temporary, though are at present intensifying the squeeze felt by businesses and customers.

“While higher inflation is uncomfortable for the MPC, it should be reassured that inflation is now near its high point for the year. Interest rates must be maintained at current low levels until at least the third quarter of 2012. If the economic situation shows signs of worsening, urgent consideration should be given to increasing the quantitative easing programme.”