Inflation rise heightens risk of recession4.4% ‘highest since 1992’

11.08.08

The level, at its highest since April 1992 and more than twice the government’s 2% target, was higher than expected, leading experts to predict an even higher peak later on in the year.

“Gas and electricity bills are set to increase and producers are still facing high input costs which could be passed onto retailers and in turn onto consumers,” said Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club.

The higher rates have lead to calls from business lobby groups for the Bank of England’s Monitary Policy Committee (MPC) to lower interest rates as soon as possible.

David Kern, economic adviser to the British Chambers of Commerce (BCC) said although the rise had not taken into account recent falls in oil prices, inflation is expected to peak within the next two or three months.

"The threats of recession are worsening. Although it is difficult for the MPC to consider rate cuts while inflation is still rising, it should not hesitate to cut rates later in the Autumn once it is clear inflation has peaked,” he said.

However, Mehta warned that businesses looking to curb spiralling costs may have to wait longer for interest rates to come down.

“We expect inflation to remain above the 2% target well into next year. And until inflation does peak, the Bank of England will be unable to cut interest rates, despite the rapid economic slowdown currently in train.”

© Crimson Business Ltd. 2008