Interest rate fears as inflation risesNew figures show increase of 3 per cent

16 January 2007

 

A pile of notes and coins.

A further rise in interest rates was forecast today as inflation figures revealed a fresh surge in the cost of living.

Economists predict the Bank of England will increase the base rate again for the fourth time since August by another quarter point to 5.5 per cent as early as next month.

The rate rise fears follow the release of official figures from the Office for National Statistics (ONS) showing the Consumer Prices Index (CPI) hit 3 per cent in December up from 2.7 per cent the previous month.

ONS data showed a number of factors pushed up inflation, largely the high petrol prices seen after the increase in fuel duty in early December, which added 2p a litre on average.

Petrol prices

Air travel also contributed to the rise following changes in the cost of fares to European destinations, as did the cost of furniture and household goods, having risen at the fastest pace month-on-month since 1997 after retailers upped prices prior to the January sales.

The Bank of England forecast in November that the rate of inflation would return to target in the first quarter of 2008.

But the inflation figures for January are expected to come under pressure again due to further energy bill rises from Scottish and Southern Energy on New Year's Day, alongside increased mortgage rates as a result of the base rate hike.

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