Jump in inflation puts Clarke on the spot

Kenneth Clarke, Chancellor of the Exchequer, suffered a fresh embarrassment yesterday when official figures showed an unexpected jump in the headline rate of inflation.

The news followed hard on the heels of the Bank of England's prediction, earlier this week, that inflation was set to miss the Government's target.

The Chancellor rushed to deflect attention from the disappointing figures to a report on the British economy from a friendlier source, the European Commission. "The Commission highlights the Government's economic policies as the reasons for the stable and sustainable recovery of the UK economy," Mr Clarke said.

A Treasury statement picked out a paragraph in the EU report which said the Government could achieve the target of underlying inflation below 2.5 per cent by the end of the current parliament.

However, the Chancellor forgot to mention the report's next paragraph, which warns of the danger of the economy overheating. "This may require a tightening of monetary policy," it continued.

City experts were certainly disappointed with the inflation figures, even though they showed the biggest one-month drop in the price of clothing and shoes since 1947, when Christian Dior introduced his revolutionary New Look.

Most economists still expect the target inflation measure to fall below the key 2.5 per cent level during the next three months, but to start increasing subsequently.

Jonathan Loynes, UK economist at HSBC Markets, said: "This was a setback for Mr Clarke." But he said better news in the pipeline over the next few months would allow the Chancellor to avoid having to raise borrowing costs ahead of the general election.

Indeed, the Chancellor had been informed about the inflation figures on Tuesday afternoon, well before he announced on the day of the Bank's Inflation Report that he saw no need for higher interest rates.

Retail price inflation rose to 2.8 per cent in January from 2.5 per cent in December, with most of the increase due to a rise in mortgage rates during the month compared with a decline the previous January. The target measure, which excludes mortgage interest payments, was unchanged at 3.1 per cent, rather than declining as expected.

There was a record-breaking fall in the price of shoes and clothing, down 5.8 per cent in January. It was the biggest drop since figures began in 1947. Although the price of clothes has risen nearly seven-fold during the past half-century, their level is the same now as a year ago.

The price of household goods also fell sharply. The 3.6 per cent decline was the biggest since 1956. But offsetting these drops in prices on the high street, there were increases in non-seasonal food prices, car insurance, second-hand cars and a variety of services.

"Service sector inflation has at last responded to the stronger demand of the last year or two," said Simon Briscoe at Nikko.

Adam Cole at brokers James Capel said the figures strongly supported the Governor of the Bank of England in his call for higher borrowing costs.

The Chancellor, however, insisted that his views and the Governor's were very close. "The Governor of the Bank and myself are entirely agreed that there is only a small difference of judgment between us - one quarter of one per cent. He thinks I put a little too much emphasis on the present strength of sterling and I think he puts a little less emphasis on the strength of sterling," Mr Clarke told MPs yesterday.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
tvThe C-Word, TV review
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
Tiger Woods and Lindsey Vonn are breaking up after nearly three years together
peopleFormer couple announce separation in posts on their websites
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
Arts and Entertainment
Haunted looks: Matthew Macfadyen and Timothy Spall star in ‘The Enfield Haunting’
tvThe Enfield Haunting, TV review
The Mattehorn stands reflected in Leisee lake near Sunnegga station on June 30, 2013 near Zermatt, Switzerland
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living