Big inflation hike threatens recovery

The rate of inflation during April jumped to a high of 3.7%, which is the highest it has been in the previous 17 months, and a much bigger leap than was anticipated.

A large part of the rise of price inflation since November of 2008 is attributed to the increase in price of food, women’s clothing, and the duty increases on tobacco.

As a result, Mervyn King the Governor of the Bank of England, was left to compose a letter that would be open to the public and sent to Chancellor George Osborne with an explanation of why inflation was over the Government’s two percent mark.

The City was surprised by the figure which anticipated an increase of 3.5%.

In terms of employers and wage negotiations, retail price inflation jumped up to 5.3% which is the highest year to year increase that has been seen since July 1991.  This rate was expected to only reach 4.9% by the City.

The higher inflation rates had spiked fears that the Bank in turn will be forced to increase interest rates sooner rather than later, although the Bank has spent the last few months stating it would only need to increase rates during the first three months of the year.

In anticipation that rates would continue to rise, sterling rose higher against the value of the US dollar jumping to $1.4514 from the previous trading rate of $1.4408.

Brokerage Stephen Lewis from Monument Securities stated that the figures came as a shock and said that this will be a formidable challenge to the MPC’s as they attempt to analyze and manage inflation and the economy in the next couple of months.