Inflation rises in March

By Angela Monaghan, Economics Correspondent

The official rate of annual inflation on the Consumer Prices Index rose to 3.5pc last month from 3.4pc in February according to Office for National Statistics data. 

It was the first rise in six months after inflation peaked at 5.2pc in September 2011. Economists had forecast no change from 3.4pc. 

The Bank of England and Government had been hoping that inflation would keep falling this year, easing the financial burden on British households and businesses. 

The Bank has repeatedly insisted that inflation would fall sharply in the early part of this year and be below the 2pc target by the end of the year.

 

 

Sir Mervyn King, the Bank’s governor, is now likely to have to write yet another letter to the Chancellor in May, explaining why inflation is more than one percentage point above the target.

 

The March rise will be an embarrassment to the Bank’s Monetary Policy Committee, which is expected to actively consider boosting its £325bn quantitative easing programme at its May policy meeting.

 

Stubbornly high inflation make further bond purchases through QE less likely, given the programme's potential to further fuel inflation.

 

 

MPC members including the Bank's chief economist Spencer Dale have warned in recent weeks that the Bank's forecasts for lower inflation could prove to be too optimistic.

 

A spokesman for the Treasury said: "Inflation has fallen by a third since September. Most market commentators expect inflation to continue falling later this year, providing ongoing relief for family budgets."

 

The ONS said that food - and in particular fruit, bread, cereals and meat - clothing, recreation and culture were the biggest drivers of higher annual inflation last month, offsetting falls in gas and electricity prices and transport costs.

 

The impact of food prices on the CPI largely reflected a big fall in March 2011 prices, making for an unfavourable annual calculation.

 

Between February and March, clothing rose by 2.2pc, which was a record for a February to March period. Petrol and diesel prices both rose to a record of £1.38 per litre and £1.46 per litre respectively.

 

"The combination of stubbornly high inflation and low wage growth may well continue to squeeze consumer spending in coming months, limiting any likely boost to spending arising from events such as the Olympics and Diamond Jubilee and acting as a drag on the recovery," said Chris Williamson, chief economist at Markit.

 

The retail prices index which includes mortgage and housing costs and has historically been used to calculate pay deals fell to 3.6pc from 3.7pc as expected. Telegraph