Bank issues 5 per cent inflation warning

Inflation is at significant risk of pushing past 5% in the coming months, policymakers at the Bank of England warned today as surging oil prices triggered by violence in North Africa add pressure to the cost of living in the UK.

March minutes of the Bank's Monetary Policy Committee (MPC) meeting showed members voted six to three in favour of holding rates at their historic low of 0.5% - but said the case for a hike had strengthened.



As the rate of inflation increases, hitting 4.4% in February, rate-setters fear the shock decline in the UK economy at the end of last year may not have been temporary as consumers continued to tighten their belts.



The Bank has been battling with inflation well above its 2% target in recent months but has insisted pressure is coming from temporary price shocks such as rising food and oil prices.



But the committee conceded for the first time in the March minutes that inflation could top 5% in the coming months, while members also raised concerns over the heightened political tensions in North Africa and the Middle East and the stranglehold the troubles could have on oil supply.



Oil prices have rocketed since the crisis in Libya began to unfold, with Brent crude in London currently 115 US dollars a barrel and crude oil for May delivery at 105 US dollars a barrel on the New York Mercantile Exchange.



The minutes said: "A substantial development during the month had been the increase in oil prices reflecting heightened political tension in the Middle East and North Africa and its possible impact on oil supply."



The committee went on: "Unless the increase in the oil price quickly reversed, it would very likely lead inflation in the near term to rise further above the target than previously expected."



The voting position of the nine-strong committee was unchanged this month with Andrew Sentance voting in favour of a 0.5% increase, Martin Weale and Spencer Dale backing a 0.25% rise and Adam Posen reiterating his vote for a second bout of quantitative easing. The remainder voted for no change in policy.



The majority were still minded to wait and see how the economy has fared in the first quarter of this year before altering their stance, the minutes added. This follows an unexpected 0.6% decline in GDP in the final three months of 2010.



The MPC said: "While the recent information on the prospects for UK net trade had been encouraging, it was not yet clear that the weakness in output growth seen in the latter part of 2010 would prove temporary, particularly in light of the latest indicators of a further weakening in consumer spending."











Economists said the minutes cast doubt over the timing of a potential interest rate hike - with many expecting the first rise to be in May.

Howard Archer, chief European and UK economist for IHS Global Insight, said: "Latest developments do little to clear the fog surrounding exactly when interest rates will start to rise.



"Indeed, the minutes concluded that recent developments had increased the uncertainty over both the growth and inflation outlooks, with higher oil prices from events in the Middle East and Africa adding both to near-term upside inflation and downside growth risks."



He went on: "The case for holding fire on interest rates for now is supported by ongoing serious uncertainties and concerns about the underlying strength of the UK economy and its ability to withstand the increasing fiscal squeeze. Signs that consumers are currently reining in their spending is a particular concern."



Vicky Redwood, senior UK economist at Capital Economics, said the earthquake in Japan, which occurred after the last meeting, was likely to add further uncertainty to the global outlook.



She added: "While a near-term rate rise is certainly still a big risk, we remain of the view that it is not the done deal markets think."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower