World Economy

Inflation to Push Britain Raise Base Rate

Economists say that the MPC may be forced to raise interest rates.Economists say that the MPC may be forced to raise interest rates.

Inflation has risen to its highest level since June 2014 new figures will show this week, bringing the prospect of an interest rate hike closer, economists say.

On Tuesday, the Office for National Statistics is expected to say that inflation, as measured by the consumer prices index, hit 1.9% in January, because of the collapse in the value of sterling, which increased the cost of air fares, food and petrol, AOL Money reported.

That would leave it just shy of the Bank of England’s 2% target rate and with inflation forecast to hit 3.1% by the fourth quarter, economists say that the Bank’s Monetary Policy Committee may be forced to raise interest rates to get it back under control.

Markit economist Samuel Agass said: “The UK inflation rate jumped to 1.6% in December, edging closer to the Bank’s 2% target.”

Governor Mark Carney has already warned there are limits to the amount of inflation the central bank will tolerate, bringing forward the likelihood of a rate rise.”

The MPC cut rates to a record low of 0.25% in August as part of a package of measures to stimulate the economy, in the wake of last year’s Brexit referendum.

The following day will see the ONS release the latest unemployment data, which is expected to be holding steady at 4.8% over the three months to December.

The rate has fallen steadily since it hit 8.5% in September 2011 and Capital Economics said that while it has been flat for the past three months, the robustness of the economy should keep employment strong. “While the labor market appears to have lost some momentum, the strength in economic activity means it should not lose much more,” Capital Economics said.

“The range of (economic) surveys of private sector firms is consistent with annual private sector employment growth slowing slightly from its current pace of around 1%.”

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