Rise In Inflation Means No Rate Cut

Inflation has jumped back up to 2.1% after being under 2% since June, and this has made the possibility of a rate cut in December or even early in 2008 virtually nil.

Driven up by rocketing fuel prices and higher foods prices the Consumer Price Index (CPI) – the Government’s preferred method of measuring inflation – went up faster than economists expected – their forecast having been 1.9%.

The Bank’s main aim with interest rates is to keep inflation down, so despite the blip in the economy, there is no chance of a rate cut with inflation having gone above target.

Petrol prices went up to 94p a litre in October (up 2.7p) – and have continued to rise even higher in November. The Government increased duty on fuel, but the price of oil per barrel is closing in on a record $100.

The CPI increase from 1.8% to 2.1% was the biggest monthly rise since March this year. Higher air fares have contributed, but the increase in food prices has had a major impact. Meat and fruit prices have risen sharply.

Coming down were gas and electricity prices, but they didn’t keep the overall figure below 2%, and it is hard to see them staying low for too long.

The Bank has held firm on the interest rate of 5.75% throughout the late summer credit crunch and the crisis at Northern Rock. At the same the US Federal Reserve has knocked 0.75% of its interest rate, resulting in some criticism for the Bank of England.

The housing market does appear to be cooling, but there are still forecasts that say the spenders will be out again in the run up to Christmas despite gloomy economic projections, rising mortgages, the squeeze on credit and now higher prices.

The Retail Price Index (RPI) includes mortgage payments, and this went up from 3.9% to 4.2% in October