Repossession risk could increase as inflation raises rate hike threat

The threat of a base rate rise that could increase the risk of hard-pressed mortgage payers facing repossession may have risen, following publication of data showing inflation is up again.

Office for National Statistics (ONS) data published today revealed the Consumer Prices Index (CPI) rose to four per cent in January, up from the 3.7 per cent figure seen in December.

In addition to increasing overall, it is now twice the two per cent target level the Bank of England’s Monetary Policy Committee (MPC) is charged with achieving, a symbolic level that could lead to more calls for a rate change to curb price rises.

One factor that could be significant is how the MPC regards the factor of VAT, which the ONS said was responsible for much of the increase.

It noted this has added to the price of fuel, alcoholic drinks and cars, all of which may be regarded by the MPC as part of a one-off impact by the new tax that will work its way out of the system in a year’s time and cannot be curbed by higher rates.

The inflation rate was also pushed up by increased fuel costs and the fact that furniture prices fell by less than normal between December and January.

How the MPC is thinking may become clearer later this week when the Bank of England’s Quarterly Inflation Report is published.

The CPI rate is in line with the median prediction of a group of 30 economists polled by news agency Bloomberg last week, indicating the impact of VAT was widely expected and predictable.

By Amy White