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Inflation Rises But IMF Predicts Increased Growth

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The inflation rise has defied the Bank of England Governor's predictions
The inflation rise has defied the Bank of England Governor's predictions

British households have come under increased pressure from an unexpected rise in inflation, defying expectations by economic forecasters.

The Consumer Price Index (CPI) rate of inflation rose to 3.5% in March, in an abrupt end to five months of continuous decline.

The rise is set to concern Bank of England governor Sir Mervyn King and the Monetary Policy Committee (MPC), who previously predicted that CPI would fall to the Government's 2% target by the end of this year.

However, a spokesman for the Treasury said inflation has fallen by a third since September and is expected to continue falling this year, providing "ongoing relief for family budgets".

Vicky Redwood, chief UK economist at Capital Economics, said the halt in the downward trend "should be only temporary".

Labour Treasury spokesman Owen Smith said: "Inflation has been stubbornly high now for a year and a half and this disappointing figure ends encouraging recent falls.

"Household living standards will be falling as a result and it is really tough on pensioners who are facing the granny tax and families with children facing a £511-a-year hit this year as a result of George Osborne's tax rises and spending cuts.

This surprise news comes as the International Monetary Fund (IMF) upgraded its growth forecast for the UK.

Britain is expected to grow at 0.8% this year, according to the IMF, up from its previous prediction of 0.6%. However, it warned that recent improvements are "fragile", blaming "spillovers" from the eurozone crisis.

The UK is predicted to outperform Germany and France in 2012, which are expected to grow by 0.6% and 0.5% respectively, while Italy and Spain will drag the eurozone into recession with declines of 1.9% and 1.8% respectively.

The IMF report comes a week before the UK gross domestic product (GDP) figures are published for the first quarter of 2012 - revealing whether or not the country entered a technical recession, following a 0.3% decline in the final three months of 2011.

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