Inflation figures hit rate cut chances

Posted on 16 January 2008

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The prospect of a cut in interest rates next month looks less likely after yesterday, as official figures revealed that inflation remained above target in December.

The CPI rate of inflation, published by the Office of National Statistics, stayed at 2.1% last month. The figure is just above the Bank of England's target rate of 2%, although it has remained steady since October.

Rising food and fuel prices were again responsible for much of the upward pressure on the rate, offset by other factors including energy costs that fell during the last 12 months. However, the price hikes for domestic energy announced in recent days are likely to add inflationary pressure before the next report, due out on 12 February.

The RPI rate of inflation, which includes mortgage repayments, slowed from 4.3% in November to 4.0% in December, showing that increases in borrowers' repayments had been smaller than in December 2006.

The chief UK economist at Lehman Brothers, Alan Castle, said that the situation was difficult for the Bank of England. "When the extent of underlying inflation pressures isn't apparent it may be hard for policy makers to justify putting rates down," he said, quoted by Bloomberg.

Category: Mortgages, Personal finance, Regulation

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