Belfast Telegraph

Pressure grows for interest rate hike

Pressure mounted on the Bank of England to raise interest rates after inflation soared to its highest level for more than two years.

The Consumer Price Index (CPI) rate of inflation hit 4.4% in February, up from 4% in January, driven by increases in the cost of a wide range of essential items, the Office for National Statistics (ONS) said.

Core CPI, which strips out volatile goods such as oil and food, reached its highest level since records began in 1997, the ONS added.

Ulster Bank chief economist Richard Ramsey said: "This highlights a worrying development, namely, inflation is not just a food and energy story."

Highlighting the pain faced by ordinary households, the ONS said transport costs rose 0.8% in the month after petrol and diesel prices hit record highs of £1.29 and £1.34 per litre due to turmoil in the Middle East and North Africa.

And the price of clothing and footwear showed a record monthly increase as January's VAT rise to 20% from 17.5% was passed on to consumers and retailers, bringing in bigger than normal hikes following the post-Christmas sales.

Rising cotton prices helped push high street clothing prices up 13% in the past year and women's clothes up 19%, it emerged.

Northern Bank chief economist Angela McGowan said the rising CPI would be "highly uncomfortable" for the Bank of England's Monetary Policy Committee and a challenge to firms and consumers.

"Northern Bank's consumer confidence index for the regional economy looks pretty sour and the overall impact of these higher prices will be felt in the local retail sector in the months ahead," she said.

"The retail sector could be in for a long period of subdued sales as consumers find prices too high."

The ONS said utility bills were up 3.1% year-on-year after all the big six energy providers hiked rates in recent months, creating the biggest surge in prices since 2009.

With the Bank of England's 2% target disappearing from view, the pressure for interest rates to rise from their historic low of 0.5% grew stronger.

The Bank believes the spike in inflation is due to global one-off factors and that inflation should fall back to target next year.