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UK inflation rate starts to rise | UK inflation rate starts to rise |
(20 minutes later) | |
A key measure of UK inflation has risen for the first time since February, official figures have shown. | A key measure of UK inflation has risen for the first time since February, official figures have shown. |
The Consumer Prices Index (CPI) climbed to 1.5% in October, up from 1.1% in September. | The Consumer Prices Index (CPI) climbed to 1.5% in October, up from 1.1% in September. |
Meanwhile the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose to -0.8% from -1.4%. | Meanwhile the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose to -0.8% from -1.4%. |
Inflation accelerated mainly because fuel prices fell by a lot less than they did in the same period a year ago. | Inflation accelerated mainly because fuel prices fell by a lot less than they did in the same period a year ago. |
Record rises | Record rises |
The Office for National Statistics (ONS) said fuel costs fell by just 0.7% between September and October, compared with a record 6.1% fall last year. | The Office for National Statistics (ONS) said fuel costs fell by just 0.7% between September and October, compared with a record 6.1% fall last year. |
That fall was caused by a dramatic slide in the price of oil. | That fall was caused by a dramatic slide in the price of oil. |
The MPC has highlighted that inflation is going to be very volatile in the near term Amit Kara, UBS | The MPC has highlighted that inflation is going to be very volatile in the near term Amit Kara, UBS |
Prices of second-hand cars, which rose at the fastest rate on record, also contributed to the inflation rise in October, the ONS said. | Prices of second-hand cars, which rose at the fastest rate on record, also contributed to the inflation rise in October, the ONS said. |
It also said rising prices of recording devices, games and toys helped to push inflation up. | It also said rising prices of recording devices, games and toys helped to push inflation up. |
Cuts in the cost of banking services, particularly overdraft charges and mortgage arrangement fees, helped to offset some of the price rises. | Cuts in the cost of banking services, particularly overdraft charges and mortgage arrangement fees, helped to offset some of the price rises. |
The rise in the RPI - the biggest monthly rise since 1990 - was due in part to the fact that house prices are currently rising, but were falling last year. | The rise in the RPI - the biggest monthly rise since 1990 - was due in part to the fact that house prices are currently rising, but were falling last year. |
'Temporary spike' | 'Temporary spike' |
Analysts had expected the rate of inflation to rise, so the figures came as no surprise to the City. | Analysts had expected the rate of inflation to rise, so the figures came as no surprise to the City. |
"I don't think this is anything that will worry the Monetary Policy Committee [of the Bank of England] too much," said Amit Kara at UBS. | "I don't think this is anything that will worry the Monetary Policy Committee [of the Bank of England] too much," said Amit Kara at UBS. |
"The MPC has highlighted that inflation is going to be very volatile in the near term." | "The MPC has highlighted that inflation is going to be very volatile in the near term." |
The committee sets interest rates which are the main policy tool available to control inflation. | The committee sets interest rates which are the main policy tool available to control inflation. |
The Bank of England has also said inflation will probably go up after the temporary reduction in VAT expires in January, although inflation is then expected to fall back again. | The Bank of England has also said inflation will probably go up after the temporary reduction in VAT expires in January, although inflation is then expected to fall back again. |
However, October's rise in inflation did lead some analysts to question whether the Bank would pump more money into the economy beyond the £200bn it has already announced under its quantitative easing (QE) programme. | However, October's rise in inflation did lead some analysts to question whether the Bank would pump more money into the economy beyond the £200bn it has already announced under its quantitative easing (QE) programme. |
"While such a spike [in inflation] is expected to prove a temporary affair, it is hard to reconcile the Bank rolling out QE yet further in February hot on the heels of CPI potentially returning to letter-writing territory," said Richard McGuire at RBC. | "While such a spike [in inflation] is expected to prove a temporary affair, it is hard to reconcile the Bank rolling out QE yet further in February hot on the heels of CPI potentially returning to letter-writing territory," said Richard McGuire at RBC. |
The government target for the CPI measure is 2%. The governor of the Bank of England has to write to the chancellor if the annual rate of CPI inflation is more than 3% or less than 1%. | The government target for the CPI measure is 2%. The governor of the Bank of England has to write to the chancellor if the annual rate of CPI inflation is more than 3% or less than 1%. |
But while some questioned the wisdom of expanding QE, others urged the Bank to continue pumping money into the economy. | |
"Given the serious risks facing the UK economy and the dangers of a double-dip recession in 2010, it is important for the MPC to persevere with an aggressive QE programme, and to consider special measures aimed at boosting bank lending to businesses," said David Kern, chief economist at the British Chambers of Commerce. |