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		</div><p><a href="http://londonglossy.com/wp-content/uploads/2011/02/inflation-at-highest-for-two-years.jpg"><img class="alignnone size-full" title="Bank of England governor Mervyn King is under pressure to act on rising inflation figures" src="http://londonglossy.com/wp-content/uploads/2011/02/min-inflation-at-highest-for-two-years.jpg" alt="Bank of England governor Mervyn King is under pressure to act on rising inflation figures"/></a></p>
<p>Pressure on the Bank of England to raise interest rates has intensified as inflation increased to its highest level in more than two years in January.</p>
<p>The Consumer Prices Index (CPI) rose to 4% last month, from 3.7% in December, the Office for National Statistics (ONS) said, as the increase in VAT from 17.5% to 20% and the soaring cost of crude oil have pushed up the cost of living.</p>
<p>The CPI figure, the highest since November 2008, is double the Government&#8217;s 2% target and is likely to throw weight behind the argument for hiking interest rates from a historic low of 0.5%.</p>
<p>As inflation has been more than 1% above target for three months, it will trigger a letter of explanation from Bank of England Governor Mervyn King to Chancellor George Osborne.</p>
<p>The CPI rate unexpectedly surged from 3.3% to 3.7% in December, prompting calls for an interest rate hike. But weaker-than-expected economic growth figures, revealing a 0.5% decline in gross domestic product in the final quarter of 2010, dampened this prospect.</p>
<p>The economy is in a fragile position &#8211; teetering close to a period of so-called stagflation, when sluggish growth and high unemployment combine with soaring prices. Last week, the Bank held interest rates for the 23rd consecutive month.</p>
<p>Economists had expected inflation to hit 4.1% in January, so it has come in slightly below expectations. But the CPI rate of inflation rose 0.1% between December and January &#8211; the first time since records began in 1997 that inflation has risen between those two months.</p>
<p>The price of petrol as recorded by the CPI stood at £1.27 a litre in January 2011, a record high, the ONS said, while other contributing sectors included transport, restaurants and hotels, furniture and alcohol.</p>
<p>Downward pressure on overall inflation came from falling clothing prices, as well as a drop in the cost of recreational activities, such as CDs and DVD purchases.</p>
<p>The City will be looking closely at the Bank&#8217;s latest quarterly inflation report, published on Wednesday, to determine when policymakers believe inflation will start to return to the 2% target or if and when interest rates are likely to go up.</p>
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