Another interest rate rise may take place as a result of rising inflation

After inflation jumped to over 3% in March, there is now speculation that another interest rate rise will have to follow.

The target for inflation for the Bank of England is 2% but this jumped to 3.1% in March, with the Bank of England stating that it is determined to get the level of inflation back under control to its target. With inflation over 1% higher than target it is thought that interest rates will have to rise again, despite three rises already having taken place since August of last year.

It is thought that the Bank of England will now have to raise interest rates by at least a further 0.25% in May, and some say it may even be higher than this, which would bring the interest rate to 5.5% or higher.

Howard Archer, economist at Global Insight, stated: "This is a thoroughly nasty set of data that essentially guarantees that the Bank of England will raise interest rates by a further 25 basis points to 5.5% in May. 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."

Figures also showed that RPI rose to 4.8% in March, compared to 4.6% in February. And for the first time in years, the UK saw the pound soar to a point where it broke through the $2 barrier – a move which many had speculated would not occur.

In an attack on the chancellor, the Conservative shadow chancellor George Osborne stated: "Gordon Brown's reputation for economic competence is unravelling before our eyes."

Tom Smith
22.04.07

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