UK Interest Rise Looms as Inflation Climbs

22 March 2007

LONDON: UK inflation was pushed up unexpectedly in February by increases in air fares and food costs. The 0.1% rise in the Consumer Prices Index to 2.8% will put pressure on the Bank of England to increase interest rates yet again, as the figure is well beyond its 2% target.

Meantime, the Retail Prices Index notched a bigger increase, from 4.2% in January to 4.6% last month, according to the Office for National Statistics.

The RPI - often used as the basis for pay deals - was at its highest level since August 1991, although there has been little sign so far of wage inflation.

The figures are "another sign that inflation pressures are being persistent," comments James Knightley, an economist at ING Financial Markets.

And Zaki Kada, from Thomson IFR Markets, adds: "In this context, we suspect the chances of a [interest rate] hike next month are above 50%."

Data sourced from BBC Online; additional content by WARC staff