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Prices at pumps to hike UK’s inflation


Rise in inflation during October, the first in seven months, has prompted fears of more pain ahead for household finances hit by recession.

The Consumer Prices Index rose from 1.1% to 1.5% in October — mainly due to a much smaller fall in forecourt prices than the record plunge a year earlier, caused by tumbling oil prices.

The first rise in the index since February was followed by warnings that soaring petrol prices would ratchet up the inflation pressure in the coming months.

According to the AA, average UK petrol prices have reached a record 108.69p a litre — the highest in more than a year and well above the 105.4p October average recorded by the Office for National Statistics.

The end of the temporary VAT cut will add a further 2.4p to petrol prices in January, the motoring organisation warned — taking prices well over the £5-a-gallon mark.

Petrol prices peaked at 119.7p in July 2008 but have bounced back 22.8p since January's low of 85.89p. Diesel prices are also at a year high of almost 110p a litre.

Although CPI is still below the Bank of England's 2% target, today's figure is slightly above the 1.4% expected by the City.

Other reasons behind the rise included a bigger than expected jump in food prices, a record rise in second-hand car costs and higher air fares. Landline telephone costs also rose.

The Bank expects inflation to climb above its target in the months ahead after the VAT cut is reversed. Analysts speculated that Governor Mervyn King could be forced to write another letter to the Chancellor to explain why inflation is more than 1% above target in January.

Rising inflation also raises the possibility the Bank may have to reverse its policy of quantitative easing — injecting cash directly into the economy — and raise rates sooner than expected.

The Retail Prices Index rose from minus 1.4% to minus 0.8% on the month — the biggest month-on-month rise in more than 19 years. The same factors influencing the CPI affected the RPI — with the added impact that house prices are now rising compared with falls a year earlier.

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