UK CPI Inflation rises to 3.3 per cent

Tuesday, 14 December 2010 12:00

The UK Consumer Prices Index (CPI) annual inflation rate increased to 3.3 per cent in November, sliding further away from the Treasury's target of two per cent.

There were big rises in food, non-alcoholic drinks and clothes between October and November according to the Office for National Statistics (ONS).

It is widely expected that inflation will continue to rise steeply in the New Year as energy price rises and the rise in VAT from 17.5 per cent to 20 per cent have an impact, possibly taking inflation beyond four per cent during 2011.

The Retail Prices Index, which includes mortgage interest payments, increased from 4.5 per cent to 4.7 per cent.

The figures will increase the call from some commentators that there should be a rise in the Bank of England base rate to try and lower inflation. However, the increase of base rate and the effect on households' mortgage payments could hinder the economic recovery, so the policy makers face a difficult balancing act.

However, the spending cuts and limited spending by the public that is expected over the next two years should have an anti-inflationary effect, so the underlying impact from inflation over the longer term is still muted.

A further concern for consumers in the New Year is that retailers will use the VAT increase as a smokescreen to put up other prices by more than the VAT increase.

• Tags:
• bank of england
,
• economy
,
• inflation
,
• interest rates
,
• news
,
• treasury