Inflation Still On The Increase!
The rate of inflation in the UK, which reached 3.3% this month, is likely to continue to increase, according to Mervyn King, the Governor of the Bank of England.
Mr King announced the news earlier this week and went on to say that he expects the rate of inflation to rise sharply through the second half of this year, eventually exceeding 4 per cent. The Government has set a target figure of only 2% for inflation and the Governor of the bank is required to write to the Chancellor with an explanation, every time the rate moves to 1% above the target figure.
This news means some tough decisions for the Monetary Policy Committee (MPC) when it meets each month, with regard to interest rate changes. The MPC are under increasing pressure to reduce interest rates in order to assist the large number of borrowers who are struggling to manage their monthly payments on their loans and mortgages, however any reduction in the base rate would be likely to exacerbate the negative situation with inflation.
In the latest MPC meeting this month, it was decided to maintain the base rate at 5% for June, with eight members voting to keep the rate constant and only one member opting for a rate reduction. Some experts are calling for an increase in the base rate, but this would be unlikely to help inflation, as the increase has mostly been caused by external forces such as high oil and food prices and an increase in interest rates would not alter this.
So it looks as though the consumer is going to have to tighten his belt yet further, with high inflation putting a squeeze on earnings, as well as fairly high interest rates causing continuing financial difficulties for those with a loan or mortgage.
