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Unchanged Inflation May Encourage Calls for More Cuts in Interest

Unchanged Inflation May Encourage Calls for More Cuts in Interest Official figures have revealed that consumer inflation in Britain remained static at 2.5 per cent last month.

The latest data compiled by the Office for National Statistics (ONS) found that inflation remained unchanged from February after increased air and transport costs were countered by a fall in the price of household furniture.

Meanwhile, the Retail Prices Index (RPI) measure of inflation dropped 0.3 per cent in March to 3.8 per cent.


When the Bank of England's Monetary Policy Committee (MPC) met this month it cut base interest rates from 5.25 per cent to 5 per cent, to assist homeowners, help consumers get out of debt, and lift the troubled British economy.

However, the latest ONS figures will most probably lead to calls for further cuts - calls which the Bank is determined to resist, concerned as it is about the possibility of fuelling inflation.

In fact, just a day before it published its consumer and RPI inflation figures, the ONS revealed that producer inflation in Britain soared to 6.2 per cent last month - the highest level since late 1990.

With ever-rising oil and food prices fuelling total inflation, the ONS said that core inflation (excluding both of these factors) stayed the same as in February, at 1.2 per cent.


Capital Economics chief European economist Jonathan Loynes said that the 2.5 per cent inflation figure, "should give the Monetary Policy Committee scope to continue cutting interest rates over the next few months," although he stressed that, "of course, the MPC will remain concerned about the outlook.”

"Not only are food and energy prices likely to push the headline rate up further over the next few months, but there is a clear danger that the sharp rises in producer prices eventually feed through into core CPI,” said Mr Loynes.

Debt Management News posted on 21 April 2008

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