Underlying inflation up to 2.3% in March

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The Independent Online

Higher energy prices pushed the underlying annual rate of inflation higher during March but within the Government's 2.5 per cent target, staving off the prospect of an imminent rise in interest rates.

Higher energy prices pushed the underlying annual rate of inflation higher during March but within the Government's 2.5 per cent target, staving off the prospect of an imminent rise in interest rates.

Retail price inflation, excluding mortgage interest payments, rose from 2.2 per cent in February to 2.3 per cent last month, as higher petrol prices offset lower meat prices and the comparative impact of rises in tobacco duty in last year's March Budget. Oil prices have surged in recent weeks amid mounting tension in the Middle East and after the suspension of supplies from Iraq.

The overall rate of inflation, including mortgage payments, rose from 1.0 per cent in February to 1.3 per cent.

Economists said the data was in line with forecasts and unlikely to push the Bank of England's Monetary Policy Committee into taking swift action on rates, which sit at a 38-year-low of 4.0 per cent. The Government has instructed the Bank to set rates with a view to keeping the underlying rate of inflation within one percentage point either side of 2.5 per cent.

"[This] is confirmation that there is little sign of inflationary pressures in the UK at the moment," Adam Chester, an economist at Halifax, said. "I don't think the [Bank] is biting at the bit to put up interest rates."

There were fresh signs of the boom in consumer spending, with inflation in the services sector sitting at 4.6 per cent, the same level as in January but last seen in June 1993. However, prices of clothes and shoes fell by 5.6 per cent, their fastest rate of decline since records began in 1947.

Inflation in goods was only 0.1 per cent, creating the largest gap between it and the service sector since 1991. The data was produced by the Office for National Statistics.

John Butler, the UK economist at HSBC, said the next rate rise was likely to be in July, and voiced concern about the inflationary outlook. "If the economy is starting on a new recovery phase when it is close to full employment, inflation would be expected to rise during the second half of this year."

But other economists said likely tax increases in today's Budget would put a dampener on retail inflation.

US inflation figures were similarly benign, with the US labour department's consumer price index rising 0.3 per cent in March against 0.2 per cent during the previous two months. Excluding food and energy prices, the increase was only 0.1 per cent.

There were also renewed signs that the US economy was clawing its way out of recession, with factory output rising by a better-than-expected 0.7 per cent last month, its largest monthly increase in almost two years. By contrast, new home starts fell 7.8 per cent in March, the largest fall in two years.

The data boosted hopes that the US Federal Reserve, chaired by Alan Greenspan, will wait until later this year before it raises interest rates, which currently sit at 1.75 per cent.

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