Inflation hits eight-year high
Rising prices have pushed inflation to its highest level in eight years.
The annual rate of consumer price increases rose to 2.3 per cent from June’s two per cent, according to the Office for National Statistics – the highest rate since Labour came to power in 1997.
Analysts put the increase down to soaring oil prices that breached $65 a barrel this month.
Crude oil prices have hit record highs amid supply concerns in the Middle East, security alerts in Saudi Arabia and political instability in Iran.
Economists noted it was the first time inflation exceeded the Bank’s two per cent target since the consumer price index (CPI) was adopted as its main inflation measure in December 2003.
The figure stood at two per cent in June and economists had expected a more modest increase to 2.1 per cent.
Petrol prices, which have moved past the 90p a litre barrier, added 0.13 per cent to the annual CPI rate, the ONS said, increasing 3.3 per cent over the month and 9.8 per cent year-on-year.
Furniture and other household goods, including white goods, contributed 0.1 per cent.
Last week, the Bank of England lowered interest rates by 25 basis points to 4.5 per cent amid slowing economic growth in the second quarter.
In its quarterly inflation report, the Bank predicted CPI would rise above the government’s two per cent target in the short term before falling back at the end of the two-year forecast period.
Analysts now expect the inflation data may prompt the BoE’s monetary policy committee to curb any more cuts in interest rates during this year.
Shadow chancellor George Osborne last night said the downturn in the retail sector was indicative of the government’s failed fiscal policy.
“I do not lay at the government’s feet the rise in inflation today, that is largely due to the oil price increases, but the fundamental problem facing the British economy at the moment is that we are becoming less and less competitive vis-a-vis the US, China, India, Eastern Europe and so on,” he said.
He urged the government to reduce corporate taxes on businesses to boost British competitiveness.
