Economists are anticipating that official data for January will illustrate that inflation has risen to 4%, which would be the highest rate since 2008 and twice the Bank of England’s target level.
The weak pound pushing up the cost of imports, the jump from 17.5% to 20% in VAT and the sharp rise of global commodity prices are reasons for the expected rise of inflation.
If predictions are correct, Mervyn King, governor of the Bank of England, will write a fifth consecutive letter to the Chancellor George Osbourne explaining why. This comes after the Bank of England’s decision to keep interest rates at 0.5%, a percentage unchanged for two years.
The bank will have to explain their policy on Wednesday in an Inflation Report. The Governor has stood up against criticism of keeping interest rates low by insisting “inflation is close to zero and well below target” when excluding imported and one-off cost pressures.
If official data for January does reveal a soar in inflation, it may add further pressure onto the Bank of England to rethink their policy of keeping interest levels at the same rate, which will have an impact on already struggling small businesses.
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