Inflation nears 2% target
18 December 2009
The headline (CPI) rate of inflation reached 1.9% in November, according to official statistics - just 0.1% short of the Bank of England`s 2% target.
The rising price of petrol had a particularly big impact on inflation, with average prices at the pump rising by 2.8% last month.
But inflation could reach as much as 3% next month, once VAT returns to 17.5%, according to The Times.
The recent rise in inflation could prompt speculation about what the Bank of England will do with its base rate. Many economists have said they expect the base rate to remain at 0.5% for some time, but rising inflation could force the Bank to consider raising the base rate and encouraging lower levels of spending.
However, analysts have said this is unlikely in the present circumstances. Colin Ellis, European Economist at Daiwa Securities, said: "As the Monetary Policy Committee [MPC] learnt last year, a temporary rise in inflation, by itself, is not a good reason to raise interest rates. So today`s inflation figures have little implication for the policy stance."
Tags: inflation, prices, VAT, VAT rise
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