Belfast Telegraph

Spectre of 'stagflation' gathers pace

By Russell Lynch

The "stagflation" spectre of rising inflation and slowing growth has returned to haunt UK households after a string of warnings over rising prices from companies.

Fashion chain Next, which has branches across Northern Ireland has flagged up price rises of up to 8% next year due to higher cotton prices as well as the Chancellor's VAT hike to 20% from next January.

Wheat prices rising at their fastest pace for almost 40 years thanks to a Russian drought have also sparked worries at Hovis bread maker Premier Foods, threatening to put up the cost of the weekly shop.

The British Retail Consortium (BRC) says the upward pressure on food prices will linger in the months ahead, even while prices on the high street rise at a far slower pace.

Non-food inflation is down to its lowest rate since November 2009 but the annual rate of increase for food prices leapt from 1.7% to 2.5% last month, the BRC adds.

The Bank of England's inflation benchmark, the Consumer Prices Index, is currently easing back from January's highs, although it remains more than 1% over its 2% target and the looming VAT rise will send it well over 3% again from next January.

Meanwhile the UK economy - which roared ahead at its fastest pace since 2006 between April and June - is expected to cool as the year goes on, with growth remaining subdued next year as austerity measures kick in. This is likely to be reflected in the bank's latest quarterly forecasts next week, which should show a fresh spike in inflation as well as a slowdown in growth.