Inflation Rate Continues To Rise
The latest figures show that the UK inflation rate increased to 3% in December. This is the highest level for 10 years and means further interest rate rises are more likely.
The official inflation rate is given by the Consumer Prices Index (CPI). This is calculated using the prices of many different goods and services and was 2.7% in November. The Office for National Statistics says that the increase in transport costs was a major factor contributing to the latest rise in the inflation rate. This was due to higher petrol prices and the increase in fuel duty.
The Retail Prices Index (RPI) increased from 3.9% to 4.4% in the same period. The RPI includes mortgage interest payments and is at the highest rate since 1991.This figure is often used to justify increased wage demands.
Experts had expected the inflation rate to increase following the rise in the interest rate last week. However, the size of the increase was a surprise. The Bank of England is supposed to keep the CPI inflation rate to the 2% target set by the government, but the figure has been above this for the last 8 months. Therefore a further interest rate rise is now predicted.
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