UK inflation hit double the Bank of England’s 2% target last month as it soared to its highest level in more than two years, official figures have shown.
The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) rate of inflation hit 4% in January, up from 3.7% in December, as the increase in VAT and the soaring cost of crude oil pushed up the cost of living.
Governor Mervyn King admitted in a letter to Chancellor George Osborne there was a “great deal of uncertainty” over the inflation outlook and there were “real differences of view” among Bank of England policymakers.
Economists called into question the Bank’s credibility as the Governor confirmed inflation was likely to pick up to between 4% and 5% over the months ahead.
The City will now look to the Bank’s quarterly inflation report for further insight into its stance on interest rates.
Rocketing inflation has raised the stakes for a rate hike to arrive sooner rather later, according to economists, although pressure may have eased after the figure came in a little below expectations.
The CPI rate of inflation rose by 0.1% on a monthly basis between December and January – the first time prices rose between those two months since records began in 1997.
The price of petrol hit a record high of 127p per litre in January, the ONS said.
But rising prices in transport, restaurant and hotels, furniture and alcohol also made significant contributions to the increase in the overall rate of inflation.
Within transport, prices of new cars were up 2.4% between December and January, while second-hand cars went up 2%.