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Inflation surged to a record high of 4.4 per cent in July, more than double the Government's 2 per cent target, due to the rocketing cost of food.
The Consumer Price Index (CPI) measure of inflation in July rose at a record pace from 3.8 per cent in June and above analysts' forecast of 4.2 per cent. Inflation is now at its highest level since current records began in 1997 when the Bank of England was given independence.
Before 1997, inflation was last higher in May 1992 when the economy was in the grip of recession.
It also emerged today that the Retail Price Index (RPI) measure of inflation, which includes housing costs, rose to 5 per cent, up from 4.6 per cent in June and is the highest for nearly two decades.
It is now likely that the Bank of England will sharply increase its forecasts for inflation in its three-monthly report to be published tomorrow.
In the previous report in April, the Bank said that inflation would peak at just over 4 per cent.
However, last week the International Monetary Fund said UK inflation was likely to reach 5 per cent this year, and some economists predict it could spike during August or September.
Last week, the Bank of England's Monetary Policy Committee (MPC), which has prior access to today's inflation figures, voted to keep the interest rate on hold at 5 per cent.
It is now unlikely that the MPC will vote to cut borrowing costs in the short term, and may increase the interest rate to stem inflation.
Howard Archer, chief UK and European economist at Global Insight, said: "The sharp spike up in inflation in July increases the risk that the Bank of England will raise interest rates, despite the fact that the economy seems more likely than not to contract over the second half of the year."
Analysts said the 0.3 per cent rise in core inflation, a measure that excludes volatile energy, food, alcohol and tobacco costs, to 1.9 per cent in July, signalled that, even though demand was waning, retailers were being forced to pass on their increased costs to customers. This raised concern that "second-round" effects of higher oil prices could be passing through to the economy, entrenching higher prices for consumers.
The cost of living has risen for some households after another round of punishing price increases by two major energy groups, despite a slide in the wholesale price of gas and oil.
However, inflation has also been driven higher by record rises in the cost of food, with food inflation spiralling to 12.3 per cent, the biggest leap since 1997.
The cost of air travel also rose sharply, due to rocketing oil, with prices increasing at an annual rate of 8.9 per cent, up from 5.4 per cent in June.
Energy prices rose at 16.1 per cent in July, up from 13.8 per cent in June, and economists say these could rise more as further price increases kick in.
Households are grappling with rising energy costs after a number of suppliers increases bills in recent weeks.
EDF was the first leading provider to raise bills for its five million UK customers, increasing gas by 22 per cent and electricity by 17 per cent.
However, British Gas went further and increased its gas bills by 35 per cent, and electricity by 9 per cent.
Scottish Power is among those expected to announce double-digit price rises for its 5.2 million gas and electricity customers soon, while E.ON, npower and Scottish & Southern Energy are also thought to be preparing further rises to household bills.
The pressure on households' income was highlighted yesterday as the price of goods leaving factories rose at the fastest pace since 1986.
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They are muppets for not putting interest rates up, but we all know now why they haven't, it would be political suicide to the government - well to those who think that the property asset bubble was a good thing of course. I am surprised at Merv though, as an intellectual he should know better!
Austin Tassletine , South West , UK
Mr Darling,
Why don't you just exclude food prices from your inflation measure? That will bring the inflation rate down, just like it did when you exclused house prices from your measure.
Mark, Leeds,
The water companies want rises of up to 4.5% on top of inflation. 4.5+4.4= 8.9%.
david webb, bournemouth, uk
Is anyone surprised given that the BoE has deliberately devalued Sterling with its foolish rate cuts?
Paul, Coventry,
....and the allowance on childcare vouchers has been £243 for years...no increases whatsoever.
Graham, Farnham, Surrey
Where is Labours prudent management of the economy? It was all smoke and mirrors, except the banned smoking
steve tea, manchester, cheshire
I think if you subtract the decimal point from the 4.4% you will have a more realistic inflation figure.
Dave Bridge, Southport, UK
I tell you what, tax is up by more than 4.4%
Sunny Patel, Coventry,
It really does not matter where inflation peaks. The point is that it will peak and then fall. What matters more is where it falls to. We are entering into a period of deleaveraging and deflation.
Chris, Haslemere, Surrey
I fail to see what raising interest rates will do. We are already reducing the high street sales, how will increasing our mortgage payments make food and oil prices decline??? Leave it as it is.
David, Reading, Berks
There is no need to raise interest rates. Utility companies are doing a great job in bleeding us dry. I can only think that Brown and Darling are happy to see them take our money to stop us spending it elsewhere. I hope they remember the very similar scenario in the 70's. Look where that ended up!
A.Williams, Cradley Heath,
I dont ming BOE having a relaxed approach with inflation since i prefer them to act when inflation hits 8% which would mean interest rates increased at around 10% and 10% of all householders loosing their homes. Remember inflation is like a ball roling down a hill. It just gets faster and faster.
des, London, Uk
Inflation in 'unavoidables' is vastly higher than 4.4%. Probably nearer 12%. A decrease in the cost of a computer - which people might buy every 5 years or so - is immaterial. The Govt is completely dis-honest about the real rate of inflation: no-one believes the official statistics.
Donna Walker, Effingham, England
This does make you wonder about the MPC. They're supposed to look 2 years ahead but since inflation has been above target for a long time, it seems that they aren't doing their job properly and are being pressured by Brown and Darling to keep their so-called miracle going.
Rob H, London,
The Bank of Englands only policy is to deliver rampant house price inflation,when it fails to do so its the end of the world,
well its not had they acted on house price inflation over the last ten years,we would all be in a better place,they should act in intrests of the country.
KENNETH BOWRY, LONDON,
The BOE have to balance the fact that if they raise rates a recession is almost guaranteed. Only people with substantial savings or public sector employment can surely welcome mass unemployment and high interest rates?
steve, Chelmsford, Essex
But essentials such as bread and other food items are bounding way ahead of this figure. How can they get away with these completely fallacious 'inflation' figures? What, short of a revolution, [I'm too old for the barricades!] could we do about such blatant [Mugabe inspired] misrule?
S. Barraclough, Huddersfield, Yorkshire W. R.
4.6% is it April fools day?
This bunch of cheats have run this country into the ground
they haved have taxed and cheated us untill we have no more
to give.
The normal person on the street was better off 10 years ago
shame on nulabour and on the Bank of England for going
along with them.
stephen, Blackpool, England
I'm disabled Im wholly reliant on benefits.
Allowing for phone and internet costs, practically all my spending is on food and energy. I cant afford to buy the dvds and cheap cloths used to massage inflation fig. The rate of the inflation I experience is far higher than the govs 4.4%.
Paul Hatch, Axbridge, UK
Presumably this inlcudes the recent fall in oil (fuel) prices, otherwise the rate would have been significantly higher.
David Leslie, Perth, Scotland
The reality is that inflation is about 10% per annum and has been for the last three years but when goverments look at core inflation they strip out anything that rises...they can run but cant hide ..we need clarity and stabilty , stamp duty , rates etc , we need a goverment
Andrew jennings , Chalfont St Peter, England
Food up 12.3%, energy up 16.1% etc.: pray tell what prices are plummeting at record rates to offset these? Hmmm...
David Ball, Bristol,
What a disgrace, inflation at 4.4% and the MPC do nothing. Having cut rates 3 times since the credit crisis began the pound has plunged against the Euro and is now sliding against the dollar. What are the MPC doing? The first test in their 10 year history and they have dropped the ball.
Simon, London, UK
When house price inflation stalls, as in 2005, the bank immediately slashes rates.
But when inflation is more than double the target they do nothing and tell us it will drop back in the medium term.
What then is the true remit of the BofE? To deliver rampant house price inflation at all costs?
Klara Jiracko, cheltenham, UK
Is this with or without including the statistics for house price inflation, bad enough and then with knock-on effects for the rest of the economy?
Joe, Manchester,
Considering the rise is due to the increase in food a fuel I dont see what the Bank of England can do.
Increasing the base interest rate wont stop the need eat or to heat or power the country.
A cut in fuel tax may help..
T Wadey, Hove, UK
Officially 4.4%* and rising, and yet the BoE continue to hold the base rate at 5%!?! Interest rate hikes are needed ... now!!!
*Blatantly at least double this ... unless you can eat iPods and plasma TVs!
Andy, Bath, UK
This goverment is selling this country down the plug hole to the global elite.
This is all planned and engineered to happen in order to gain control.
Andrew, Durham, England
Inflation has now permeated the inflation statistics; if cpi inflation is 4.4% what is real inflation.
The Bank of England has lost control of inflation.
Jim, Belfast, NI
The MPC must have known this when keeping the interest rate on hold.
Absolute irresponsibility. Their main mandate is to control inflation,and they do nothing. I do not know what they are playing at.
I do know that there will be a heavy future price to pay for their lack of action.
jackie, paphos, cyprus