Inflation soars to double the government

15th February 2011

The Retail Prices Index (RPI) – which also incorporates mortgage interest payments – rose to 5.1% from 4.8%.

The new figures will apply further pressure on the Bank of England to raise interest rates, after controversially opting to freeze them at 0.5% in February for the 23rd consecutive month.

A rise in interest rates will be bad news for mortgage borrowers on tracker and variable rate deals – some of whom had been accustomed to mortgage costs as low as 2.5%.

Even the nation's savers, who have been hoping for a rise in rates, will continue to suffer as climbing inflation will mean their cash is worth effectively less.  Andrew Hagger, spokesperson for website Moneynet, said: "With CPI now at 4%, a basic rate tax payer needs to earn 5% gross on their savings to maintain their spending power – in a standard savings account this is just not achievable.  For a higher rate tax payer that figure is 6.67% gross."

 Experts forecast there is little prospect of inflation easing in the near future with the price of oil commodity and food prices, continuing to rise.

January marks the 14th month that CPI – the most commonly-applied measure of inflation – has been north of the government's 2% target by a margin of at least 1%.

SEE ALSO: Bank of England's reputation at stake as inflation rises

 

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