UK inflation rate increases to 3.5%

Wednesday, February 17, 2010

According to an announcement made by the Office for National Statistics (ONS) on Tuesday, the inflation rate of the United Kingdom measured by the Consumer Price Index (CPI) increased to 3.5% in January 2010, an increase of 0.6% from December 2009. For the UK, this is the second largest month-on-month inflation rate increase on record. The inflation rate for the country has also now reached its highest level since November 2008.

The causes of this inflation rise include a 70% rise in oil prices, and value added tax recently being increased to 17.5%. The headline inflation rate of the Retail Prices Index (RPI) also increased from 2.4% for the month of December 2009 to 3.7% for the month of January 2010. Meanwhile, the underlying rate of RPI increased from 3.8% to 4.6% over the same period.

The British Government has an inflation target of 2%, which was surpassed by more than 1%. For this reason, Mervyn King, who is the Governor of the Bank of England has written a required explanatory letter to Chancellor of the Exchequer Alistair Darling. In the letter, King wrote: "Although it is likely to remain high over the next few months, inflation is more likely than not to fall back to the target in the second half of this year."

Alistair Darling then wrote a letter in response, which said that the future expectations of the inflation was "subject to some uncertainty" as countries around the world continue to recover from what he called the "deepest downturn in modern times".