UK June inflation up to 2.5%
18th July 2006

As a result of rising household utility bills, inflation has risen from 2.2% in May to 2.5%. This figure which is well above the 2% target may put pressure on the Bank of England to raise interest rates to keep inflation under control.

However, analysts have also shown that some staple items have increased the rate of inflation. Malcolm Barr of JP Morgan Chase said that “higher food and drink prices have conspired to add to that effect in the June data”.

Capital Economics forecasters have said that the Monetary Policy Committee may not be as anxious to raise interest rates as the market currently believes”. But clues as to whether the MPC will raise the interest rate from 4.5% to 4.75% will appear in the minutes of the meeting from a couple of weeks back. An emphasis on the effect high energy prices will have on second round inflation, such as higher wage demands and mark-ups on the High Street, could reveal the MPCs intention to hike the interest rate.

Sources:
The FT - UK June CPI higher than expected
BBC Business website - Fuel costs push inflation to 2.5%