UK Inflation Rise Adds To Interest Rate Pressure

UK Inflation Rise Adds To Interest Rate Pressure

Written by: David Gibson

The latest CPI and RPI figures have shown a significant jump in the rate of inflation, adding credence to the increasingly widespread calls for the Bank of England to raise interest rates from their current historic low.

The rate of inflation in the UK has risen significantly according to the latest CPI and RPI measures, increasing pressure on the Bank of England to raise interest rates in a bid to cool off further price inflation.

The Consumer Price Index (CPI), which measures inflation using everyday consumer and household goods, increased from 3.3% to 3.7% in December – almost double the target level of 2% the Bank of England is committed to maintaining.

The RPI, a distinct measure of inflation, also reflected a rise in the rate of inflation, up to 4.8% from 4.7%. And with the impact of a 2.5% increase in VAT in January yet to factor fully into inflationary considerations, some analysts are suggesting inflation could continue to pose problems throughout 2011.

High inflation is seen as economically problematic, and there are growing calls for the Bank of England to raise the base interest rate of interest from its current record low of 0.5%.

However, some commentators are concerned that a rise in interest rates now could compound economic difficulties, increasing the cost of living and doing little to calm inflation caused by rising commodity prices.

The Monetary Policy Committee of the Bank of England, who met last week, agreed to hold interest rates at 0.5% for at least another month.