LONDON, June 17: British inflation hit a 16-year high of 3.3 per cent in May, driven by soaring food and energy costs prices, figures showed on Tuesday, complicating central bank efforts to keep a slowing economy on track.
Analysts said the outcome extinguished hopes of an interest rate cut by the Bank of England (BoE) for the foreseeable future as fears about rising prices outweigh concerns over an economic slowdown and a flagging housing market.
They said it was possible that the central bank might even hike interest rates to head off inflation risks despite calls for an easing to take the pressure off the housing market and broader economy.
The 12-month inflation reading was the highest level since July 1992 and a sharp increase from 3.0 per cent in April, the Office of National Statistics (ONS) said.
The outcome was above the official central target rate of 2.0 per cent for the seventh month in a row and compared with analyst forecasts for 3.2 per cent.
As the 12-month inflation figure breached the central bank’s upper target of 3.0 per cent, BoE governor Mervyn King was obliged to write to finance minister Alistair Darling to explain why.
“Inflation has moved sharply higher this year,” King wrote in an open letter to Darling, whose official title is chancellor of the exchequer.
“That rise can be accounted for by large, and until recently, unanticipated increases in the prices of food, fuel, gas and electricity.”
Leading economies around the world are battling soaring inflation that has largely been fuelled by the soaring cost of oil and food.—AFP
