Inflation hits 14-month high of 3.5pc

BRITAIN’S inflation rate jumped to a 14-month high of 3.5 per cent in January.

The increase in the Consumer Price Index (CPI) will mean Bank of England Governor Mervyn King will have to write a letter of explanation to the Chancellor detailing why inflation has risen more than one percentage point above the 2 per cent target.

However, the rise was in line forecasts.

The Office for National Statistics said the return in VAT to 17.5 per cent had the biggest impact on inflation. Higher transport costs were also a factor.

RPI rose to 3.7pc year on year, just below forecasts of 3.8 per cent.

Analyst Howard Archer of Global Insight said: “Inflation was always going to spike in January due to the VAT hike and unfavourable base effects resulting from sharply falling oil and food prices a year ago.

“In addition, it appears that retailers engaged in significantly less discounting in the post-Christmas clearance sales this January compared to January 2009 when they had higher stock levels and were especially worried about the prospects for consumer spending.”