Inflation increased by 0.5% between May and June

15 July 2008

Inflation reaches 11-year high

New figures have shown that inflation reached an 11-year high of 3.8% in June, up half a percent from 3.3% in May, because of the increase in food and fuel costs.

The increase has pushed inflation to almost double the government’s 2% target and has therefore reduced the chances of the Bank of England Monetary Policy Committee (MPC) reducing UK interest rates in August.

Just recently, the Bank of England warned that inflation may surpass 4% this year. However, it has to balance inflation with concerns over growth.

James Knightley, economist at ING, said: “The Bank of England can’t cut rates until it is convinced inflation is moving downwards.”

However, the British Chambers of Commerce (BCC) said that if the MPC increased interest rates to rein in inflation, it would be a “serious mistake”.