Inflation keeps climbing even as QE2 expectations take hold

UTILITIES prices are rising, leading economists to predict inflation will spike in the coming weeks.

Figures released tomorrow are expected to show annual consumer price index (CPI) inflation rising from 4.4 per cent in July to 4.6 per cent in August – well over twice the official two per cent target. Sharp rises in electricity and gas prices are a key cause behind the increasing rate.

The statistics are in line with the Bank of England’s predictions in its August Inflation Report, which estimate that inflation will pass the five per cent mark in quarter four of this year. Those forecasts are based on interest rates staying put at 0.5 per cent – where they have been for the past 30 months – and the asset purchase programme resting at £200bn.

Yet weak data is expected to push the Bank’s monetary policy committee (MPC) towards further loosening.

Such a move could push inflation higher. And with gilt yields so low, some analysts have questioned whether additional QE could actually achieve its aim of pushing lending rates down.