Inflation rose only marginally in January, official figures showed yesterday, prompting renewed calls for aggressive interest rate cuts. The Office for National Statistics said inflation, as measured by the consumer price index (CPI), hit 2.2 per cent in January, up from 2.1 per cent at the end of last year.
The rising cost of petrol was the most important contributory factor, with higher food costs, particularly for fruit, also making a significant difference. The retail price index, which includes additional costs such as mortgage bills, also rose in January, to 4.1 per cent, up from 4 per cent in December.
The CPI is at its highest level since last June, though City economists said inflation had not picked up as quickly as had been expected, with analysts having forecast a rate of 2.4 per cent for January.
The lower-than-expected inflation rate offers some hope to retailers and business groups which have called for the Bank of England to follow last week's interest rate cut with more reductions over the next few months.
Figures from the Council of Mortgage Lenders published yesterday also encouraged those in favour of aggressive rate cuts. The CML said the number of mortgages approved in December fell 35 per cent, year on year, to 62,000, as the slowdown in the housing market continued. The number of mortgages approved during the final three months of last year was the lowest since 1995.
Interest rate doves also pointed to the latest figures from the Royal Institution of Chartered Surveyors, which will reveal today that 54.7 per cent more surveyors reported a fall than a rise in house prices in January, an increase from 49.1 per cent in December.
However, economists warned that other data, including strong retail sales figures for January and high factory-gate inflation, would continue to act as a bar on the readiness of the Bank's Monetary Policy Committee to cut the cost of borrowing.
While the Bank is eager to counter the effects of a slowdown in the world economy, its chief objective is to deliver inflation as close to 2 per cent as possible. Mervyn King, the Bank's Governor, has already warned that inflationary pressures in the year ahead could force him to write a letter to the Chancellor, explaining why the Bank has allowed inflation to rise above 3 per cent.
"While the January data will be of some relief to the Bank of England, consumer price inflation nevertheless seems set to rise significantly higher over the coming months as rising utility bills, elevated food prices and a weaker pound impact," Howard Archer of Global Insight said.
"Consequently, we do not expect the Bank of England to cut interest rates again until May, unless it becomes clear that growth is slowing substantially."