Rising gas and electricity bills are expected to drive inflation up to close to 5pc this week, heaping further pressure on British household finances.
By Angela Monaghan
8:30PM BST 15 Oct 2011
Economists are forecasting that the consumer price index (CPI), the official measure of inflation, rose sharply to 4.9pc in September from 4.5pc in August, fuelled by higher utility price rises.
“September should be a nasty month for inflation, with the CPI rate set to rise sharply from August’s already elevated 4.5pc,” said Philip Shaw, economist at Investec.
British Gas, E.On, and Scottish and Southern Energy pushed up prices by an average of 16pc for gas and 13pc for electricity, adding about 0.4 percentage points to the CPI in September.
The Bank of England has persistently missed its 2pc annual inflation target, and the September figures, to be published by the Office for National Statistics on Tuesday, will represent the 22nd consecutive month above the target.
Some economists, including Mr Shaw and Alan Clarke of Scotia Capital, believe the figures will show CPI inflation rose above 5pc in September to 5.1pc. Renewed price wars among the major supermarkets are not expected to feed into September’s figures, and food is expected to contribute to higher inflation.
Inflation is expected to ease back later in the year, before falling below 3pc during the first half of 2012 as factors including the January VAT rise fall out of annual comparisons.
A report by the Ernst & Young Item Club, the independent economic forecasting group, published tomorrow will say the UK recovery is “grinding to a halt” and more quantitative easing is unlikely to have the desired effect.
It will say the Bank should instead consider cutting interest rates further by at least 0.25 percentage points to 0.25pc. Rates have been at the historically low level of 0.5pc since March 2009.
Item will also argue the Chancellor, George Osborne, should be more flexible with austerity and consider new measures to stimulate growth. The group is cutting its UK growth forecasts to 0.9pc in 2011 and 1.5pc in 2012, from earlier forecasts of 1.4pc and 2.2pc respectively.