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UK inflation climbs to 4%

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16/02/2011

The UK inflation rate rose to 4.0% in January, double the government’s target and up from 3.7% the previous month.

This hike puts further pressure on the Monetary Policy Committee (MPC) to raise interest rates, although they were kept on hold at 0.5% last week.

Last month, consumer price inflation (CPI) reached its highest level since November 2008, largely as a result of the VAT jump from 17.5% to 20%, while oil, commodity and food prices also had an impact.

Meanwhile, inflation measured by the retail price index reached 5.1% last month, up from 4.8% in December.

Bank of England governor Mervyn King will once again be forced to write another letter to the government explaining what remedial action will be taken to bring inflation back to target levels.

Michael Hewson, market analyst at CMC, commented: “UK futures markets are already factoring in two to three 25 basis points rate hikes by year end and a figure anywhere above 4% could well bring forward the date of any potential first hike.”

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