UK inflation increased to 4.7% in August

16 September 2008

Rising food prices play large part in pushing up inflation

The annual rate of inflation in the UK has increased from 4.4% in July to 4.7% in August.

As a result, the governor of the Bank of England, Mervyn King, will now be required to write a letter to the Chancellor telling him why inflation is still above the government’s target of 2%.

According to the Office for National Statistics, inflation has been pushed higher by increases in energy and food bills which sent the Consumer Price Index (CPI) higher.

However, inflation measured by the Retail Prices Index (RPI), which is often used when negotiating pay, decreased from 5% to 4.8%.

While inflation has continued to rise, the Bank of England Monetary Policy Committee (MPC) has not been able to consider reducing interest rates to help the current slowdown of the UK’s economy.

But the sharp decline in the cost of oil prices over recent weeks has left some analysts optimistic that inflation could soon peak.

Richard Hunter, analyst at stockbrokers Hargreaves Lansdown, said: “This latest inflation figure, coupled with the recent moves in energy prices, could be an indication of inflation nearing its peak.

“This in turn could lead to a loosening of monetary policy by way of an interest rate cut in the UK, at a time when the markets are eagerly seeking signs of recovery,” he added.