Rise in consumer inflation

August saw the rate of consumer inflation rocket to 4.7%, creating further difficulties for the Monetary Policy Committee and the Bank of England, which have been trying to keep a lid on inflation levels by keeping the base rate on hold at 5% for the past five months. The rate of inflation is now well above the government target rate of 2%.

Industry officials have predicted that the rate of inflation could soar to 5% or beyond before the end of this year. The governor of the Bank of England, Mervyn King, has blamed the rise in inflation largely on rising food and energy prices. The high level of inflation for August has been blamed mainly on the increase in energy usage costs.

One economist from ING stated: “Given the Bank’s caution, it does suggest that they are not particularly keen to loosen monetary policy just yet and that it would take some severe financial market problems or a major downward revision to the activity outlook to get them to move rates in October or even November.”

Officials from the British Chambers of Commerce are, however, still pushing for a rate cut given the state of the UK’s economy and the high risk of recession. An official from the BCC said: “As the global financial crisis worsens, there is an urgent need to act promptly, in order to counter severe threats of recession.”