With May consumer price inflation running at about 3.4% (down from 3.7% in April) there are no real indications about how it will go in future. The VAT increase in January will certainly have an impact, but this may not be significant. The big news in June was, however, that one of the Monetary Policy Committee members, Andrew Sentance, actually voted for an increase in interest rates to 0.75% – the first such vote since August 2008.
Views are mixed on what impact an interest rate rise might have. On the one hand, anything that increases costs to industry can be expected to push factory gate prices up, thus increasing inflation; on the other hand, the Bank of England argues that low interest rates can make it more difficult to control inflation. It is largely relying on overcapacity to prevent price rises at the moment, but others feel that this is not the case.
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