Inflation reaches 3%

Based on article from The Times, The FT, 16 January 2007

The Bank of England Governor, Mervyn King, can keep his fountain pen in his box, as the CPI inflation has not breached the 3% target. In the event of inflation going over 3%, King will have to write an open letter to the Chancellow explaining why this has happened and what the Bank will do to correct it.

Much of this rise in inflation has been caused by the price of fuels and energy. As a result, air travel has become more expensive, which prompted some airlines to raise ticket prices due to the government's increase in fuel duty. Furniture and household goods also saw its biggest month on month increase. However, the price of clothing has been on a downward trend due to the Christmas sales.

A more representative index of inflation is the RPI, which includes interest on mortagages. Firms usually use this measure to make wage settlements.

Due to higher interest rates, which may yet again increase in coming months, many people have taken out fixed rate mortages and has prompted many banks to stop offering this. Many of those who are left on variable mortages will be left at the mercy of Bank of England.

Links:
UK Inflation rate at 11 year high - BBC
UK inflation - The FT
Banks withdraw fixed rate mortage offers - The Telegraph