No Respite From Inflation Figures

No Respite From Inflation Figures

PRESS ASSOCIATION -- Rising prices and a weak economy are to come into sharp focus again with the release of the latest inflation figures for June.

Consensus forecasts in the City show that inflation is likely to have remained at 4.5% - more than twice the Bank of England's target - when official figures are published by the Office for National Statistics (ONS).

It will be the 19th month in a row that the Consumer Prices Index (CPI) measure of inflation has been above the Bank's target of 2%, with the rate also the highest in more than two years.

The figure, which has been driven by rising food and energy costs and an increase in VAT, will maintain pressure on the Bank of England to raise interest rates from their historic low of 0.5%, though its problem is how to square this with weak economic data suggesting the UK recovery may be stalling.

Howard Archer, chief UK and European economist at IHS Global Insight, said an interest rate hike was looking increasingly unlikely before 2012.

He said: "Even small interest rate rises could present serious problems for financially-stretched households.

"Furthermore, even if the Bank of England only edges interest rates up, it will affect consumer psychology as people are bound to

see the move as the first in a series of hikes."

The CPI figure for June is expected to reflect recent rises in the price of food. Last week, the British Retail Consortium said food inflation hit its highest rate in more than two and a half years and this will offset a drop in fuel prices and summer sales starting early.

Meanwhile, core consumer price inflation is seen easing back to 3.2% in June, after retreating to 3.3 in April, said Mr Archer.

The Consumer Prices Index is likely to hit 5% late this year as the recent energy price hikes from British Gas and Scottish Power have an impact. The rate is then forecast to drop back towards target by 2013, and the Bank of England has concluded that there is little evidence that the UK is slipping into a damaging inflationary spiral.


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