UK inflation hit BoE target in April: ONS

UK inflation hit BoE target in April: ONS

	Published : Tue, 16 May 2006 13:25 By : Cedric Benson Print this Story

LONDON - The Office for National Statistics (ONS) has revealed that the inflation in the month of April increased following an inexplicable dip in March. The Consumer Prices Index (CPI) jumped to 2 percent in April from the 1.8 percent recorded in March.

This figure is on target with the Bank of England's preferred rate. The main reason the inflation increased was the holiday season due to Easter when air traffic rose as well. Analysts are of the opinion that the uncertainty in this rate would make it difficult for the BoE to justify an increase in the interest rates.

"Headline CPI inflation is hovering around the inflation target but there is still little evidence that rising energy costs are having second round effects and pushing underlying inflation higher," said John Butler, an economist at HSBC. "The renewed stability in economic activity may have removed the need for an imminent rate cut but the lack of inflationary pressure also implies there is little need to hike."

The whole perception on the interest rates has radically changed over the last few weeks. From demanding a rate cut, the market has reconciled to the fact that there may be one or two rate hikes in this year. Last week’s quarterly Inflation Report last week from the Monetary Policy Committee has only served to heighten expectations of a rate hike. The MPC said in the report that the CPI was bound to rise due to high fuel import costs.

Howard Archer, chief UK economist at Global Insight feels that a rate hike is highly unlikely till 2007 despite the hawkish view of the MPC. "It is clear that the Bank of England is now on high alert for any signs that elevated energy prices are increasingly feeding through to have significant second round effects, especially given that inflation expectations have risen recently," he said.

"Consequently, we acknowledge that the hawks at the Bank could push for an early interest rate hike, particularly if the housing market continues to strengthen or consumer spending firms appreciably."