Belfast Telegraph

Shock rise in inflation ... but new IMF report lifts spirits

By David Elliot and Jamie Grierson

The Northern Ireland economy was left reeling yesterday, dented by a shock rise in inflation but buoyed by warm words from the International Monetary Fund (IMF).

The UK Consumer Price Index stood at 3.5% last month and, while only slightly higher than the 3.4% posted in February, the jump in inflation caught economists by surprise and is expected to rattle the Bank of England.

A fall in the number of supermarket promotions has been blamed for the hike in prices which has brought to an end five months of declines.

Bank of England governor Sir Mervyn King and his colleagues previously predicted that CPI would fall swiftly back throughout this year to the Government's 2% target. Households were squeezed by high prices and sluggish wage growth throughout 2011 and some relief from the high cost of living was expected this year.

The Bank will now be less inclined to pump more money into the economy through its quantitative easing programme if inflation continues to remain above target.

Despite the early knock to confidence, a new report from the IMF lifted spirits.

It said the UK economy is expected to grow at 0.8% this year, up from its previous forecast of 0.6%, but the IMF said recent improvements were "fragile" as "spillovers" from the euro area crisis hit the rest of the continent.

The IMF said eurozone output, which includes the Republic, will decline 0.3% as the sovereign debt crisis, a general loss of confidence and tough austerity measures across the region have an impact.

The report comes amid resurgent fears over the health of the single currency bloc, with Spain in focus as the country's borrowing costs soar against a backdrop of high unemployment and swelling private debt. While the IMF upgraded its global growth forecast from 3.25% to 3.5%, it warned the recovery would be "weak".

The UK will outperform Germany and France in 2012, which are expected to grow by 0.6% and 0.5% respectively, while Italy and Spain will drag the eurozone into recession with declines of 1.9% and 1.8% respectively.

Greece remains the biggest drag on the troubled region, with a 4.7% decline forecast for 2012.

In a boost to Chancellor George Osborne, the IMF said "strong" fiscal tightening in advanced economies had made good progress.

0.8%

The rate at which the UK economy is expected to grow this year

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