Pressure builds on MPC as rising inflation reaches three-year high
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Further pressure is being piled on the Monetary Policy Committee to increase interest rates after it was revealed last week that inflation rose to 4.4% in February.
Figures from the Office for National Statistics show inflation crept up from 4% in January to reach its highest level since 2008 in February.
Domestic heating costs and clothing are the most significant drivers behind the increase.
Annual inflation as recorded by the retail prices index, which includes mortgage interest payments, is now 5.5%, up from 5.1% in January.
The latest increase means that Bank of England governor Mervyn King will have to write to chancellor George Osborne explaining why inflation has missed its 2% target.
It has now been more than 1% above the target for 15 months.
John Mawdsley, chief executive officer of Omnii Solutions, says sentiment in the City will quickly turn against the MPC if it doesn’t get inflation under control.
He says: “RPI is at its highest since 1991 and a rate rise is moving onto the horizon. I don’t expect lenders will be too perturbed.
“Yes, they do have to consolidate their balance sheets, but their margins are strong enough to be able to swallow a rate rise.”
David Newnes, estate agency managing director of LSL Property Services, says inflation is becoming potentially dangerous.
He says: “When it gets as high as this, low mortgage rates begin to be offset by the reductions in spending power that inflation brings.
“Wages aren’t keeping up with prices, but consistently high infla-tion does improve the bargaining position of employees when they are asking for a pay rise.
“Across the economy, this means that unless the Bank takes action soon, we could be saddled with high inflation.”
He adds that pressure on the MPC is becoming intense and it will need to show that it is capable of controlling inflation sooner rather than later.
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