By Jaimie Kaffash
18 May 2010
Consumer price index inflation reached 3.7% in April, the highest since November 2008, the Bank of England has confirmed.
The Bank’s governor, Mervyn King, sent an open letter to Chancellor George Osborne, published today, informing him of the rise before the Office for National Statistics publishes the full figures tomorrow. He warned that as this is 1% above the target, the Bank is required to inform the chancellor.
He said that this rise can be attributed to three factors: higher oil prices, which have risen by almost 80% since the beginning of 2009, affecting petrol inflation; the rise in VAT in January, back to 17.5%; and the depreciation of sterling in 2007/08.
King writes that the oil price and VAT rise should affect inflation for no more than a year. He adds that the depreciation of sterling will continue to raise inflation, but the effects will ‘wane over time’. It could even be brought below target after 12 months, he said.
In his reply, Osborne said that the Treasury forecasts CPI inflation would be 2.1% in the final quarter of 2010 and 1.7% a year later.
18 May 2010
Consumer price index inflation reached 3.7% in April, the highest since November 2008, the Bank of England has confirmed.
The Bank’s governor, Mervyn King, sent an open letter to Chancellor George Osborne, published today, informing him of the rise before the Office for National Statistics publishes the full figures tomorrow. He warned that as this is 1% above the target, the Bank is required to inform the chancellor.
He said that this rise can be attributed to three factors: higher oil prices, which have risen by almost 80% since the beginning of 2009, affecting petrol inflation; the rise in VAT in January, back to 17.5%; and the depreciation of sterling in 2007/08.
King writes that the oil price and VAT rise should affect inflation for no more than a year. He adds that the depreciation of sterling will continue to raise inflation, but the effects will ‘wane over time’. It could even be brought below target after 12 months, he said.
In his reply, Osborne said that the Treasury forecasts CPI inflation would be 2.1% in the final quarter of 2010 and 1.7% a year later.
