“These figures were broadly as expected after the disappointing increase to 4.5 percent last month. On this basis, we reiterate our forecast that annual CPI inflation will peak over the next few months at just under five percent, before falling steadily during 2012. With sizeable utility price increases likely, higher inflation is unavoidable in the coming months, and premature interest rate increases at this time could put the recovery at risk.
“While we accept that interest rates may have to rise before the end of the year, we urge the MPC to act with caution. The government’s deficit-cutting measures are already putting pressure on businesses and consumers, and the MPC should hold its nerve in the next two to three months to avoid risks of a setback.”