A Consumers Prices Index (CPI) rate of inflation of four per cent or higher would be required to prompt the Bank of England to hike the base rate, a f…
A Consumers Prices Index (CPI) rate of inflation of four per cent or higher would be required to prompt the Bank of England to hike the base rate, a financial expert has predicted.
Reacting to the news this week that inflation rose to 3.7 per cent in December, founder of financial website Moneymagpie.com Jasmine Birtles said such a development was the unavoidable consequence of world events, such as a rise in the cost of fuel and basic foodstuffs.
To this may be added the factor of VAT, she commented, although this will not have had an effect on spending in December.
Ms Birtles remarked: “Thankfully, we should be grateful that it hasn’t gone past the four per cent mark. If it did then that really would be a problem. There really would be a strong possibility of interest rates having to be put up.”
Instead, she suggested, a rate of 3.7 per cent is “kind of around what was expected”.
While inflation may cause problems for those struggling with debt because of the squeeze it will put on already stretched household budgets, any base rate increase could cause major difficulties for those whose biggest financial problem would be maintaining mortgage repayments.
Director of strategy at F&C Investments Ted Scott said after the inflation news there is an increasingly strong possibility of the Monetary Policy Committee raising the base rate, as its “credibility” is at stake with CPI outside its target range in 55 of the last 66 months.
He stated the markets have factored in two rises in the base rate this year, with the first by May.
By Joe White