Inflation set to remain well above the target |
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Tue, 12 Sep 2006 11:00
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LONDON - The inflation rate looks set to remain well above the government target of 2 percent, thus putting more pressure on the Bank of England to raise the interest rates, which currently stand at 4.75 percent after a quarter point raise in August this year.
The Consumer Prices Index (CPI) rate of inflation was 2.4 percent in July, according to the official figures and experts are divided on how the August rate increased affected them. Philip Shaw, chief economist at Investec Securities felt that the inflation rate hit 2.5 percent in August, but the Centre for Economics and Business Research (CEBR) predicted a fall to 2.3 percent.
But even with these conflicting predictions, the rate still remains above 2 percent, which means the Bank will be forced to reconsider the interest rates once again. The Bank's governor, Mervyn King warned last month that the inflation may edge up to 3 percent over the next six months. Economists say if this happens there is a good chance of the Bank hiking the rates further in November latest.
Analysts though seem to think that the Bank would be left with no alternative. "Energy prices remain headline news, but the upward impact from higher electricity and gas prices should be limited this time," Mr Shaw said. "Food prices should see a further increase, partly on rising costs generally, but also due to the impact of a hot, dry July on seasonal food prices - especially potatoes."
HSBC has predicted that the inflation hit 2.4 percent last month, but that the impact would only be felt once the university tuition fees start to take toll on the economy.
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