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Inflation could break 3% barrier Inflation could break 3% barrier
(40 minutes later)
The latest rate of inflation will be announced later, and some analysts expect it to have risen more than 1% above the Bank of England's target. The rate of inflation is expected to have risen above 3% when the figures for May are released by the Bank of England later.
It could have risen above 3% in May - which would force the bank to explain why consumer prices are so high. This could force the Bank's governor to write to the chancellor explaining why the rate is above the target of 2%.
Rising oil and food prices have pushed up the cost of living, while the UK's economic growth has slowed.Rising oil and food prices have pushed up the cost of living, while the UK's economic growth has slowed.
In April, the Consumer Price Index (CPI) rose unexpectedly from 2.5% to 3%, the biggest rise for six years.In April, the Consumer Price Index (CPI) rose unexpectedly from 2.5% to 3%, the biggest rise for six years.
Some analysts predict CPI in May to be as high as 3.2%. Some analysts predict CPI in May to have reached 3.2%.
This would almost certainly be the first of several letters Howard ArcherEconomist Are you feeling the credit crunch?Viewpoint: Sir Alan BuddThis would almost certainly be the first of several letters Howard ArcherEconomist Are you feeling the credit crunch?Viewpoint: Sir Alan Budd
Rising inflation has affected many of the world's leading economies, and the UK has been among those affected.Rising inflation has affected many of the world's leading economies, and the UK has been among those affected.
"Having leapt unexpectedly in April, there is a serious chance that consumer price inflation will move higher in May," said Vicky Redwood, an analyst at Capital Economics."Having leapt unexpectedly in April, there is a serious chance that consumer price inflation will move higher in May," said Vicky Redwood, an analyst at Capital Economics.
If inflation rises more than 1% above the government's 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices. If inflation rises more than one percentage point above the government's 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices.
Mervyn King and his colleagues are likely to blame international commodity price hikes.Mervyn King and his colleagues are likely to blame international commodity price hikes.
He has only had to write such a letter once before, in April 2007.He has only had to write such a letter once before, in April 2007.
"This would almost certainly be the first of several letters, as consumer price inflation looks well set to reach 4% this summer before starting to fall back late in the year," said Howard Archer, UK economist at Global Insight."This would almost certainly be the first of several letters, as consumer price inflation looks well set to reach 4% this summer before starting to fall back late in the year," said Howard Archer, UK economist at Global Insight.
Economic slowdownEconomic slowdown
But the UK Monetary Policy Committee is in a tight spot.But the UK Monetary Policy Committee is in a tight spot.
Analysts warn that raising interest rates to curb inflation would dampen an economy already dented by slowing growth and a weakening housing market.Analysts warn that raising interest rates to curb inflation would dampen an economy already dented by slowing growth and a weakening housing market.
But Mr King and his colleagues will need to be convinced that the inflationary threat has passed before they contemplate cuts in interest rates - despite pleas from those struggling in the housing market.But Mr King and his colleagues will need to be convinced that the inflationary threat has passed before they contemplate cuts in interest rates - despite pleas from those struggling in the housing market.
Consumers and companies are feeling the effects of higher energy and food bills.Consumers and companies are feeling the effects of higher energy and food bills.
Oil prices have nearly doubled over the past year and on Monday, the price hit a fresh high close to $140 in New York trade.Oil prices have nearly doubled over the past year and on Monday, the price hit a fresh high close to $140 in New York trade.
UK consumer price inflation for May is due at 0930 BST.UK consumer price inflation for May is due at 0930 BST.