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UK inflation hits 3.1% in March Rate hike fear as inflation jumps
(20 minutes later)
The Bank of England governor will have to write a letter of explanation to the government after UK consumer price inflation rose to 3.1% in March.The Bank of England governor will have to write a letter of explanation to the government after UK consumer price inflation rose to 3.1% in March.
The news could trigger a further rise in UK interest rates.
The Consumer Prices Index (CPI) is now more than one percentage point above the government's 2% target.The Consumer Prices Index (CPI) is now more than one percentage point above the government's 2% target.
Figures from the Office for National Statistics (ONS) also show that a wider inflation measure, RPI, rose to 4.8% in March, up from 4.6% the month before.Figures from the Office for National Statistics (ONS) also show that a wider inflation measure, RPI, rose to 4.8% in March, up from 4.6% the month before.
The figures could trigger a further rise in UK interest rates. The pound sterling soared on currency markets as a result, briefly passing through the $2 level.
Pound Sterling soared on currency markets as a result, briefly passing through the $2 level.
Rate riseRate rise
The Bank of England has raised UK rates three time since August last year in an attempt to contain inflationary pressures. This is a thoroughly nasty set of data that means that essentially guarantees that the Bank of England will raise interest rates Howard Archer, Global Insight
The Bank of England has raised UK rates three times since August last year in an attempt to contain inflationary pressures.
At its last rate-setting meeting earlier this month it kept rates at 5.25%, but following the latest inflation figures analysts now expect the Bank to lift rates in May to 5.5%, and possibly beyond.At its last rate-setting meeting earlier this month it kept rates at 5.25%, but following the latest inflation figures analysts now expect the Bank to lift rates in May to 5.5%, and possibly beyond.
"The argument for a rate hike is a done deal," said Adrian Hughes, currency strategist at Societe Generale. "We can't rule out rates going higher (beyond May)." "This is a thoroughly nasty set of data that means that essentially guarantees that the Bank of England will raise interest rates by a further 25 basis points to 5.5% in May," said Howard Archer, economist at Global Insight.
"Furthermore, there is a markedly increased possibility that interest rates will rise further still further out.
"Worryingly core inflation climbed to 1.9% in March, while the rise in retail price inflation to a near 16-year high of 4.8% maintains the risk that wages could yet move higher."
Inflation battle
The ONS said CPI inflation jumped 0.5% in the month, with rising milk, petrol and furniture prices behind the increase.The ONS said CPI inflation jumped 0.5% in the month, with rising milk, petrol and furniture prices behind the increase.
There is a larger chance that inflation will struggle to get back to target Jonathan Said, CEBR
The rise lifted the annual rate of CPI inflation to 3.1% - the highest since the series began in January 1997 - from February's rate of 2.8%.The rise lifted the annual rate of CPI inflation to 3.1% - the highest since the series began in January 1997 - from February's rate of 2.8%.
"There appears to be more inflation in the system which is demand led than what we had previously expected, allowing retailers and manufacturers to restore their margins," said Jonathan Said, senior economist at the CEBR.
"However, the fact that the Bank of England kept rates on hold in April probably means that their medium term inflation expectation has remained unchanged - implying that the central forecast should remain one of rates peaking at 5.5% in May.
"Nevertheless, increased upside inflation risks are emerging, so that there is a larger chance that inflation will struggle to get back to target as soon as we had expected."
The letter from the Bank of England explaining the increase will be the first such written since the government handed control of monetary policy to the Bank in 1997.The letter from the Bank of England explaining the increase will be the first such written since the government handed control of monetary policy to the Bank in 1997.
The letter is set to be published at 1030 UK local time (0930 GMT) and the Treasury is expected to respond at the same time.The letter is set to be published at 1030 UK local time (0930 GMT) and the Treasury is expected to respond at the same time.