Experts have warned that interest rates might have to rise by more than previously feared because current measures are doing little to reduce high inflation.
The base rate, which is set by the Bank of England, might end up as high as 5 per cent as decision-makers try to keep a lid on runaway price rises, economists said on Wednesday.
The warning comes after Consumer Prices Index inflation hit 10.1 per cent in March, a fall from 10.4 per cent in February, but still much higher than the 9.8 per cent that experts had predicted.
Inflation is a measure of how fast prices are rising for shoppers across the country. The Bank of England is meant to try to keep inflation as close to 2 per cent as possible at all times.
The main tool it has to do this is interest rates. By putting up the base rate, it encourages people to save rather than borrow.
This reduces the amount of demand for products and services, therefore helping to keep prices under control.
Economists said that the base rate, which currently sits at 4.25 per cent, could be increased further by the Bank of England to curb inflation.
Last month, Deutsche Bank economists predicted rates were most likely to peak at 4.25 per cent, but following the latest smaller-than-expected drop in CPI inflation and continued wage inflation growth, they are now guiding towards a peak of 4.75 per cent for interest rates.
Meanwhile, economists at Investec said they are pricing in “75 basis points” of further increases by November, which would take rates to 5 per cent.
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The Office for National Statistics revealed food prices had increased by 19.1 per cent year-on-year, the sharpest jump since August 1977.
Bread, cereal and fruit prices increased, while the impact of vegetable shortages also continued to weigh on inflation.
Meanwhile, clothing and footwear prices rose by 7.2 per cent year on year, although this represented a slight slowdown against February’s data.
Restaurant and hotel prices also continued to rise at 11.3 per cent, but also saw inflation cool from the previous month.
Increases were partly offset by lower fuel costs, with petrol and diesel costs down 5.9 per cent against the same month last year after prices had spiked following Russia’s invasion of Ukraine.
“Inflation eased slightly in March, but remains at a high level,” ONS chief economist Grant Fitzner said.
“The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.
“Clothing, furniture and household goods prices increased, but more slowly than a year ago.”
Economists have predicted that stubborn inflation will drop more sharply from April amid a decline in energy prices, although the continued price cap at £2,500 ($3,110) annually for a typical home means households will feel little change.
The UK fiscal watchdog, the Office for Budget Responsibility, last month cut its forecasts for inflation, predicting CPI would end the year at about 2.9 per cent.
“These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses,” Chancellor Jeremy Hunt said.
“We are on track to do this — with the OBR forecasting we will halve inflation this year — and we’ll continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits.”
Kitty Ussher, chief economist at the Institute of Directors, said: “Business remains extremely concerned by the rate of inflation and wants to see it under control.
“While it is a relief that the headline rate of inflation is now pointing downwards again, following the surprise rise last month, the Bank of England’s job is not yet done.”
Martin Beck, chief economic adviser to the EY Item Club, said: “The club still thinks headline inflation will fall at pace this year, mainly reflecting strong base effects and falling wholesale energy prices, which should feed through into lower household bills from the summer.
“Less expensive energy will likely directly lower inflation, and by reducing businesses’ costs, should indirectly bear down on core and services inflation.
“However, the recent persistence of underlying price pressures poses a risk to just how quickly inflation will fall.”
The latest data also showed the CPI measure of inflation including housing costs dipped to 8.9 per cent for March from 9.2 per cent in February, while the Retail Prices Index slowed to 13.5 per cent from 13.8 per cent.
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Directed by: Joe and Anthony Russo
Starring: Tom Holland, Ciara Bravo
1/5
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Pharaoh's curse
British aristocrat Lord Carnarvon, who funded the expedition to find the Tutankhamun tomb, died in a Cairo hotel four months after the crypt was opened.
He had been in poor health for many years after a car crash, and a mosquito bite made worse by a shaving cut led to blood poisoning and pneumonia.
Reports at the time said Lord Carnarvon suffered from “pain as the inflammation affected the nasal passages and eyes”.
Decades later, scientists contended he had died of aspergillosis after inhaling spores of the fungus aspergillus in the tomb, which can lie dormant for months. The fact several others who entered were also found dead withiin a short time led to the myth of the curse.
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The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
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Islamophobia definition
A widely accepted definition was made by the All Party Parliamentary Group on British Muslims in 2019: “Islamophobia is rooted in racism and is a type of racism that targets expressions of Muslimness or perceived Muslimness.” It further defines it as “inciting hatred or violence against Muslims”.
UAE currency: the story behind the money in your pockets
The specs
Engine: 6.2-litre supercharged V8
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Transmission: 8-speed auto
Fuel consumption: 19.6 l/100km
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Charlotte Gainsbourg
Rest
(Because Music)
Baby Driver
Director: Edgar Wright
Starring: Ansel Elgort, Kevin Spacey, Jamie Foxx, Lily James
Three and a half stars
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Where to donate in the UAE
The Emirates Charity Portal
You can donate to several registered charities through a “donation catalogue”. The use of the donation is quite specific, such as buying a fan for a poor family in Niger for Dh130.
The General Authority of Islamic Affairs & Endowments
The site has an e-donation service accepting debit card, credit card or e-Dirham, an electronic payment tool developed by the Ministry of Finance and First Abu Dhabi Bank.
Al Noor Special Needs Centre
You can donate online or order Smiles n’ Stuff products handcrafted by Al Noor students. The centre publishes a wish list of extras needed, starting at Dh500.
Beit Al Khair Society
Beit Al Khair Society has the motto “From – and to – the UAE,” with donations going towards the neediest in the country. Its website has a list of physical donation sites, but people can also contribute money by SMS, bank transfer and through the hotline 800-22554.
Dar Al Ber Society
Dar Al Ber Society, which has charity projects in 39 countries, accept cash payments, money transfers or SMS donations. Its donation hotline is 800-79.
Dubai Cares
Dubai Cares provides several options for individuals and companies to donate, including online, through banks, at retail outlets, via phone and by purchasing Dubai Cares branded merchandise. It is currently running a campaign called Bookings 2030, which allows people to help change the future of six underprivileged children and young people.
Emirates Airline Foundation
Those who travel on Emirates have undoubtedly seen the little donation envelopes in the seat pockets. But the foundation also accepts donations online and in the form of Skywards Miles. Donated miles are used to sponsor travel for doctors, surgeons, engineers and other professionals volunteering on humanitarian missions around the world.
Emirates Red Crescent
On the Emirates Red Crescent website you can choose between 35 different purposes for your donation, such as providing food for fasters, supporting debtors and contributing to a refugee women fund. It also has a list of bank accounts for each donation type.
Gulf for Good
Gulf for Good raises funds for partner charity projects through challenges, like climbing Kilimanjaro and cycling through Thailand. This year’s projects are in partnership with Street Child Nepal, Larchfield Kids, the Foundation for African Empowerment and SOS Children's Villages. Since 2001, the organisation has raised more than $3.5 million (Dh12.8m) in support of over 50 children’s charities.
Noor Dubai Foundation
Sheikh Mohammed bin Rashid Al Maktoum launched the Noor Dubai Foundation a decade ago with the aim of eliminating all forms of preventable blindness globally. You can donate Dh50 to support mobile eye camps by texting the word “Noor” to 4565 (Etisalat) or 4849 (du).
Groom and Two Brides
Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
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Jawab Iteiqal
Director: Mohamed Sammy
Starring: Mohamed Ramadan, Ayad Nasaar, Mohamed Adel and Sabry Fawaz
2 stars
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Mohammed bin Zayed Majlis
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Specs
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RESULT
Argentina 0 Croatia 3
Croatia: Rebic (53'), Modric (80'), Rakitic (90' 1)
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