Inflation rise reduces chance of rate cut

Official figures released by the Office for National Statistics yesterday highlighted an increase in the general cost of living last month.

13:09 19 January 2005

Official figures released by the Office for National Statistics yesterday highlighted an increase in the general cost of living last month.

The annual rise in the consumer price index (CPI) means that the Bank of England's monetary policy committee (MPC) is less likely to lower interest rates.

Interest rates have been left on hold at 4.75 per cent since August as the housing market started showing signs of a slowdown.

Annual CPI growth was expected to fall from 1.5 per cent in November but it actually increased to 1.6 per cent in December, which is the highest rise since June.

While the figure is well within the MPC's target rate for inflation of two per cent, the Bank is likely to take note of the figure as it is higher than anticipated.

"The rate of inflation is still low and below target but this is a hawkish indicator and may resurrect concerns among the MPC that cost pressures are rising at a time when growth is above trend," HSBC economist John Butler told the Guardian.