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Inflation expected to top 4%
Economists are expecting to hear that inflation has risen beyond 4% for the first time in more than two years when figures are published on 15 February.
The Office of National Statistics is predicted to show that consumer price index (CPI) increased to 4.2% in January, as rising food and oil prices, along with the increase in VAT, took hold, according to reports.
The Governor, Mervyn King is required to write a letter of explanation to the Chancellor when inflation has been 1% or higher above the government’s 2% target, for three months in row.
As a result, it is expected that the Bank of England will revise its inflation forecast once more, with economists predicting that CPI could rise to as much as 5%.
With inflation threatening the country’s growth prospects, the Bank’s growth forecast is also expected to fall from 2.6% to 2%.
In addition, the base rate could also increase far sooner than previously expected, with predictions that the Monetary Policy Committee will increase interest rates in May or possibly even sooner.