17:07 PM, 17th October 2017, About 4 years ago
The Latest Office of National Statistics (ONS) figures for September show Consumer Price Inflation is now at a 5 year high of 3%.
This is up from 2.9% in August, but Mark Carney the Governor of the Bank of England told the Treasury Select Committee that inflation was likely to rise further in the relatively near term and “inflation rising potentially above the 3% level in the coming months is something we have anticipated.”
Carney told the committee that he expected inflation to peak in the next two months and he said it was likely he would be writing to the Chancellor to explain why the inflation rate is above the Banks target of 2%.
The fall in the value of the pound post Brexit and the recent 20% increase in oil prices have been the main factors increasing the costs of imported goods and these external factors are not directly controlled by domestic interest rates. In fact domestic demand and wage inflation is still relatively low with wages increasing 0.9% slower than inflation.
Mike Prestwood, ONS head of inflation said: “Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year.”
Mark Carney said that it is possible interest rates could rise in the near term if the economy continues on the present course. However, there are concerns that as the import cost increases unravel in the next few months any increase in interest rates could dampen an already slow moving economy.
Head of economics at the British Chambers of Commerce, Suren Thiru said: ” The Bank of England policymakers should resist the temptation to raise interest rates, particularly during this period of heightened political uncertainty. Raising rates before the UK economy is ready risks undermining consumer and business confidence, weakening the UK growth prospects further.”
Senior analyst at Hargreaves Lansdown, Laith Khalaf said: “The tick upwards in inflation will increase expectations of a rate rise from the Bank of England later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street. However, he did not think it was a foregone conclusion as some of the press are reporting it “so it’s probably best not to count those chickens until they’re hatched”.
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