Despite the slight drop to 4.2 per cent that occurred in June, the Consumer Prices Index again increased last month to a new high of 4.4 per cent, further eroding the balances in savings accounts across the country.
Analysts for the Office for National Statistics had predicted the CPI to rise to 4.3 per cent in July, but rising food costs and the price of clothes both led the overall percentage to rise to its highest point since 1997, when records first began being kept on inflation. The cost of food was found to have increased by 6.2 per cent this past month, while the price of clothes rose by a total of 3.1 per cent, the ONS said.
Inflation in the UK, which is currently higher than the majority of the interest rates on the nation’s savings products, has been well above the 2 per cent target set by the Bank of England since December of 2009. Financial experts predict rates to persist above this target throughout the entirety of next year, prompting Mervyn King, Governor of the BoE, to pen a letter to Chancellor Osborne in explanation of the persistently high inflation rates.
The Bank has previously issued warnings that inflation could climb as high as 5 per cent before the end of 2011 due to rising food and energy costs. However, personal and business bank account experts were quick to say that target levels should be achieved by 2013.
In related news, the Retail Prices Index, an inflation measure that incorporates the costs of mortgages in the UK and is routinely used to calculate a large number of wage deals, remained flat at 5 per cent last month. Inflation has been a global problem in recent months, which has led many international banks to raise interest rates in order to combat the problem.
The BoE’s Monetary Policy Committee, however, has been adamant in preserving the country’s 0.5 per cent base rate due to the effects doing so could have upon economic recovery efforts.