Surge in inflation

A massive surge in inflation has been reported from 2.5% to 3% caused by rising gas & electricity bills and food prices and Budget tax increases on alcohol and tobacco. Although only just released, the Bank of England's monetary policy committee did have access to this data when it met last week and decided to hold interest rates. The committee's aim to to keep inflation around 2% and never allow it to creep above 3%. City economists had been expecting a report of 2.6%.

The result of this is that another rate cut is highly unlikely. Back in October when inflation crept to 2.1% analysts thought it unlikely that there would be any further base cuts before spring.

When they next meet, the monetary policy committee will have to work out how to balance rising inflation against the reports from RICS yesterday of a record low in house sales.

Savers who are watching their savings dwindle in the face of increasing inflation will be hoping that the next rate announcement will be for a rate rise, but there is no guarantee that a rise in interest rates would have any effec on high street prices.