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.
Can Rishi Sunak tame the UK economy? — Business Extra
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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3. Welterweight 77kg:Marcos Costa (BRA) v Abdelhakim Wahid (MAR)
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Key figures in the life of the fort
Sheikh Dhiyab bin Isa (ruled 1761-1793) Built Qasr Al Hosn as a watchtower to guard over the only freshwater well on Abu Dhabi island.
Sheikh Shakhbut bin Dhiyab (ruled 1793-1816) Expanded the tower into a small fort and transferred his ruling place of residence from Liwa Oasis to the fort on the island.
Sheikh Tahnoon bin Shakhbut (ruled 1818-1833) Expanded Qasr Al Hosn further as Abu Dhabi grew from a small village of palm huts to a town of more than 5,000 inhabitants.
Sheikh Khalifa bin Shakhbut (ruled 1833-1845) Repaired and fortified the fort.
Sheikh Saeed bin Tahnoon (ruled 1845-1855) Turned Qasr Al Hosn into a strong two-storied structure.
Sheikh Zayed bin Khalifa (ruled 1855-1909) Expanded Qasr Al Hosn further to reflect the emirate's increasing prominence.
Sheikh Shakhbut bin Sultan (ruled 1928-1966) Renovated and enlarged Qasr Al Hosn, adding a decorative arch and two new villas.
Sheikh Zayed bin Sultan (ruled 1966-2004) Moved the royal residence to Al Manhal palace and kept his diwan at Qasr Al Hosn.
Sources: Jayanti Maitra, www.adach.ae
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Nigel Farage told Reform's annual conference that the party will proscribe the Muslim Brotherhood if he becomes Prime Minister.
"We will stop dangerous organisations with links to terrorism operating in our country," he said. "Quite why we've been so gutless about this – both Labour and Conservative – I don't know.
“All across the Middle East, countries have banned and proscribed the Muslim Brotherhood as a dangerous organisation. We will do the very same.”
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The prime minister at the time, David Cameron, who commissioned the report, said membership or association with the Muslim Brotherhood was a "possible indicator of extremism" but it would not be banned.
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Name: HyperSpace
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Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
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