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UK inflation rate edges up to ‘unacceptable’ 2.8%

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20/03/2007

The UK inflation rate increased to 2.8% in February, provoking fears of further interest rate rises as the Bank of England struggles to keep a lid on increasing prices and a booming housing market.

On the measure of the Consumer Prices Index (CPI), inflation in February was 2.8%, up from 2.7% the month before. The figure was boosted by increases in air passenger duty and air fares and is well above the Government’s target figure of 2% for the CPI.

“My assessment is that the Monetary Policy Committee (MPC) at the Bank of England, which sets the interest rate, will be raising rates again pretty soon, probably by another 0.25%,” said City analyst Colin Perry.

“It’s also worth noting that there was a bigger rise in the Retail Prices Index to 4.6% from 4.2% in January. The main driver here is house prices, which are excluded from the CPI, and there is currently no sign of the property market cooling.”

He added: “If the CPI goes above 3%, the Bank of England’s governor, Mervyn King, has to write a letter to the Government explaining why it has happened. Mr King does not want to write that letter – believe me – and the current rate itself is unacceptable.”

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