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UK inflation climbs to 4.4 percent in July |
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Wednesday, 13 August 2008 |
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AP, LONDON -- Consumer price inflation rate leapt to 4.4 percent in July, the government said Tuesday, making it difficult for the Bank of England to consider lowering interest rates to ward off the risk of recession. The report from the Office for National Statistics showed inflation is now at more than double the government's target of 2 percent, after rising from 3.8 percent in June.
The 0.6 percentage-point jump was the biggest monthly rise since records began in January 1997 and outpaced the 4.2 percent predicted by many economists.
''This is a really disturbing set of data that will not go down at all well at the Bank of England,'' said Global Insight economist Howard Archer. ''The rise in consumer price inflation to a series high ... was well above expectations.''
Surging inflation makes it risky for the Bank of England to lower official interest rates from the current 5 percent to boost spending and provide a spark to Britain's slowing economy -- cutting rates would also likely spur inflation yet higher.
The statistics office said that the strongest upward pressure on prices came from nonalcoholic beverages and food, especially meat, bread, cereals and vegetables. Inflation was also pushed up by rising transport costs resulting from spiking fuel prices.
However, a major concern is that the rise could not be solely attributed to higher food and energy prices.
Core inflation, which excludes volatile items such as energy and food, jumped to 1.9 percent from 1.6 percent, indicating that higher energy and food prices are having second-round inflationary effects.
The retail prices index, which includes mortgage payments and is more commonly used for wage bargaining and pension payments, reached 5 percent in July, up from 4.6 percent. That was the highest level since July 1991.
Many economists expect the consumer price index to approach the 5 percent mark later this year as the latest round of price hikes by energy providers feeds through.
Bank of England governor Mervyn King is expected to provide more insight on the central bank's expectations for prices -- and possible direction for interest rates -- when he releases its quarterly inflation report on Wednesday.
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