Commenting on the consumer price inflation figures for December, published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“These figures were higher than expected but are not entirely surprising in light of higher taxes, increased utility bills, and a surge in food and energy prices. The figures support our prediction that over the next few months annual consumer price inflation will rise to 4% and probably higher. This will create an uncomfortable background for the MPC and will add to the pressures it is now facing for an early increase in interest rates.
“But our view remains the same – raising rates at a time when fiscal policy is being tightened, while businesses and individuals are facing greater pressures, would be a mistake and should be avoided. The factors contributing to inflation at present are also adding to the squeeze on profits and disposable incomes. We believe that interest rates will have to increase later in the year, but it is critical that the MPC waits until the initial impact of the tough austerity measures have been absorbed.
“An early increase in rates will make no difference to inflation in the short-term, but would risk derailing the recovery and would make it more difficult for the government to implement its deficit-cutting programme.”