Inflation bites in the United Kingdom as households come under price pressure

He said the fall in the pound since the Brexit vote was the "sole reason" behind the recent spike in inflation and would probably see it rise over 3% "in the coming weeks", meaning he will "more likely than not" be obliged to write to the Chancellor to explain why.

Bank of England Governor Mark Carney said on Tuesday the central bank still had to balance the need to support job creation and growth with an inflation rate that is running above its target.

July and August data showed consumer prices rose by 2.6% and 2.9% respectively-the highest since 2012.

'There has been much talk of a rate hike later this year by the Bank of England, but with so many areas of weakness in the economy, and high levels of indebtedness, a rate rise could be a step too far for the Bank of England, at least until there is more clarity on Brexit, ' he said.

The Bank of England's MPC is expected to sanction a quarter-point rise in Bank Rate during its meeting on 2 November.

Silvana Tenreyro, an external member of the Monetary Policy Committee, said she might back a rate hike "in the coming months" if inflation pressure builds in the labour market, but she was keeping a close eye on how the economy performs. In late-morning trading, it was up 0.1 percent at $1.3268. In the meantime, underlying price pressures continued to be sticky, with the "core" rate, which strips energy, food, alcohol, and tobacco, stayed the same at 2.7 percent in September.

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However, the impact of the lower exchange rate on inflation is set to ease as the annual change of prices due to the pound's decline drops out of the comparison.

The dilemma facing the bank was evident in testimony given by Dave Ramsden, its new deputy governor for markets and banking.

(Update:) Inflation has hit a five-year high of 3% and the question on everybody's lips is will the Bank of England raise interest rates next month?

Michael Hewson, chief market analyst, at CMC Markets, said: "As it is several members of the MPC have signalled that rates could move in the coming months and while we're hearing some stark warnings about the risks of reversing last year's rate cut, the bond markets have already made the adjustment and already priced it in".

"Overall, today's data are consistent with our view that the Monetary Policy Committee will raise interest rates in November, but it won't be panicked into doing so by concerns about inflation".

Ramsden cautioned that leaving the European Union is "a multi-dimensional process" and that the coming months are crucial ones for Brexit.

(Copyright © 2015. All Rights Reserved.)
 
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