Budget will worsen inflation

 
Julian Harris
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BUDGETARY changes for the coming fiscal year will exacerbate the UK’s spiralling inflation, it was revealed yesterday.

Measures such as higher alcohol and tobacco duty will add 0.29 per cent to the consumer price index (CPI) in the fiscal year 2011-12, and 0.37 per cent to the retail price index (RPI), the Office for National Statistics said.

However, the inflation effects of budget changes are far lower than in 2010-11, when hikes such as the VAT rise put an estimated 1.77 per cent on CPI. Some economists expect inflation to fall back towards the Bank of England’s two per cent target when the VAT effect drops back in January next year. Inflation hit 4.4 per cent in February, and is expected to rise further, towards five per cent.

Inflation expectations could be driving stronger pay increases, reported today by Incomes Data Services (IDS).

Seven out of every eight pay settlements recorded between December 2010 and February 2011 were at or above two per cent, IDS revealed.

“And most of the April deals recorded thus far by IDS have set pay increases at three per cent or higher,” IDS said.

Another survey of wages released today shows a 2.2 per cent rise across the UK for the 12 months to February.

However, this is still the weakest rise in wages for 10 years, according to the Chartered Management Institute.

FAST FACTS | UK INFLATION LEVELS

Consumer price inflation hit 4.4 per cent in February.

The retail price index reached 5.5 per cent.

The tax and price index jumped to six per cent – it’s highest level since April 1991.