Interest rate rise feared as inflation touches 3.7% mark

A rise in annual inflation to 3.7% has sparked fears that an interest rate rise could be on the cards sooner rather than later.

The Consumer Prices Index increased to 3.7% in April, up from 3.4% in March. The government’s target for the CPI measure of inflation is 2%.

The Centre for Economics and Business Research notes that the annual rate of inflation is at its highest for 17 months and above an expected rise to 3.5%.

Mervyn King, governor of the Bank of England, will now have to write to chancellor George Osborne to explain why it is above target.

Meanwhile, the Retail Prices Index measure of annual inflation, including mortgage payments, has risen to its highest level since July 1991.

Mortgage interest payments were up by 0.6% this year but fell by 7.7% last year following the cut to Bank base rate from 1% to 0.5%.

Darren Cook, spokesman for Moneyfacts.co.uk, says: “A spiral-ling inflation rate, which could be aggravated by the predicted rise in VAT can only point towards a Bank base rate increase sooner rather than later.”