Inflation rises to two-year high

 
City A.M. Reporter
Consumer price inflation surged to double the Bank of England's target in January, official data showed, raising pressure on the central bank to look seriously at increasing interest rates.

The Office for National Statistics said that the rate of consumer price inflation rose to four per cent in January, in line with economists' forecasts, from 3.7 per cent in December.

The rise, which was driven by higher oil prices and increased indirect taxation, means inflation has been at least a percentage point above the BoE's two per cent target for more than a year.

BoE Governor Mervyn King will have to publish a letter to Chancellor George Osborne later on Tuesday explaining why inflation remains so high. Previously King has blamed above-target inflation on a succession of one-off factors, including rises in value-added tax, the depreciation of sterling and spikes in commodity prices.

Economists expect the BoE to raise interest rates from their record low of 0.5 per cent later this year, and investors are betting a rise will come by May.

The BoE will publish a new set of growth and inflation forecasts on Wednesday.

On the month, CPI rose by 0.1 per cent, the first time it has risen between December and January on record. CPI typically falls in January due to post-Christmas discounting.

The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals rose to 5.1 per cent, its highest since May 2010.