346 lines
13 KiB
Plaintext
Executable File
346 lines
13 KiB
Plaintext
Executable File
finance
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economics
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8400464
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-----
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# Inflation could hit 5pc within months, says Bank of England
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## The Bank of England has warned that inflation is in danger of rocketing
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above 5pc in the coming months, piling more pressure on policymakers to raise
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interest rates.
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![][1]
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Policymakers at the Bank are divided as to when rates must rise Photo: PA
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By [Philip Aldrick][2], and Emma Rowley 11:24AM GMT 23 Mar 2011
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[Comments][3]
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Its warning will ratchet up fears that inflation is spiralling out of control,
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fuelled by a step-change in the Bank's position in less than a month.
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In the February Inflation Report, it forecast inflation peaking at 4.5pc in
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the three months to September. Minutes for this month's Monetary Policy
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Committee (MPC) meeting, however, warned of "a significant risk that inflation
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would exceed 5pc in the near term".
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Concerns about escalating inflation appear to be persuading more members of
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the nine-strong MPC that it is time to raise rates. The minutes showed that
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the same three members voted for a rate hike as in February but suggested
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others are now more ready to join them.
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Markets already expect at least two rate rises before the end of the year and
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the Bank's own forecasts are based on a rate rise by June.
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Referring to the five members who voted for policy to be left unchanged this
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month, the minutes said: "Others thought that, given further upwards revisions
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to the near-term outlook for inflation, the case for an increase in Bank Rate
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had strengthened in recent months."
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## Related Articles
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* ['Raise interest rates before it's too late'][4]
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24 Mar 2011
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* [Tackling inflation is a painful but vital priority][5]
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24 Mar 2011
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* [MPC minutes: analyst reaction][6]
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23 Mar 2011
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* [Interest rate split: how they voted][7]
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23 Mar 2011
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* [Interest rates predicted 'to quadruple in a year'][8]
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11 Apr 2011
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* [UK economy delivers double blow][9]
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23 Mar 2011
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However, the minutes added that they had decided to wait for a clearer picture
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on the events in North Africa and the Middle East as well as the Budget's
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impact on household finances before making up their minds.
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"Overall, the uncertainty created by both developments in the oil market and
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the recent indicators of household spending and confidence meant that there
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remained merit in waiting to see how those factors evolved before altering the
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stance of monetary policy," the minutes said.
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"They are moving in a hawkish direction, but for those members reluctant to
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hike, the uncertainty that is holding them back has got even worse," Alan
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Clarke, UK economist at BNP Paribas, said.
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Inflation has soared above expectations this year, with the Consumer Price
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Index hitting 4pc in January and 4.4pc last month. For the Bank's central
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first quarter forecast of 4.1pc to be accurate, inflation would need to fall
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to 3.8pc in March - a prospect economists have described as "infeasible".
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The small tax giveaway to families expected in the Budget, through a £600
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increase in the personal allowance and a reduction of the fuel duty escalator,
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could help persuade MPC members that households would be able to stomach a
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small rise in rates.
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However, the minutes showed that much depends on the oil price, which rose
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13pc between the February and March MPC meetings.
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"Unless the increase in the oil price quickly reversed, it would very likely
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lead inflation in the near term to rise further above the target than
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previously expected, adding to the risk that expectations of medium-term
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inflation would rise," the minutes said.
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"But, in addition, higher oil prices might be expected to dent global growth
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prospects and, potentially, business, household and investor confidence. They
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would also be likely to result in a reduction in the level of real incomes and
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hence spending by UK households."
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Overall, the voting remained unchanged in March. Andrew Sentance called for a
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0.5 percentage point interest rate rise to 1pc while Martin Weale and the
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Bank's chief economist Spencer Dale voted for a 0.25 percentage point rise.
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Adam Posen voted again to leave rates at their record low of 0.5pc and
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increase quantitative easing by £50bn to £250bn. The Governor Mervyn King, his
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two deputies Charlie Bean and Paul Tucker, Paul Fisher and David Miles all
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voted for policy to remain unchanged.
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Separately, figures from the British Bankers' Association showed that mortgage
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approvals rose for a second month in February. Lenders granted 29,923 loans to
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buy homes, 2.6pc higher compared with a revised 29,159 in January. Compared
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with last year, mortgage approvals were down 11pc.
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Remortgaging was the only area of house finance showing significant growth -
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as the number hit a 19-month high in February. A total of 27,144 households
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switched to a new deal last month, the highest level since July 2009, the BBA
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said.
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"Mortgage lending remains subdued, with only remortgaging on an upward trend,"
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David Dooks, director of statistics at the BBA, said in the report. "Household
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demand for unsecured credit is also weak, as people continue to cut back on
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borrowing and build up deposits."
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[What are these?][11]
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* Share: [Share][10] [ ][12] [ ][13]
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[Tweet][14]
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http://www.telegraph.co.uk/finance/economics/8400464/Inflation-could-pass-5pc-
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within-months-says-Bank-of-England.html
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Telegraph
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## [Economics][15]
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* ### [Finance »][16]
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* ### [News by Sector »][17]
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* ### [Business Latest News »][18]
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* ### [Interest Rates »][19]
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* ### [Philip Aldrick »][20]
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In finance
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[![Riot police use tear gas as protesters throw petrol bombs in Athens][21]
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][22]
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### [Tear gas and petrol bombs][22]
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[![IMF Global Financial Stability Report: the key points][23] ][24]
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### [IMF Stability Report: key points][24]
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[![Indebtedness and Leverage in Selected Advanced Economies (as a percent of
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2010 GDP) ][25] ][26]
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### [Threats to world economy: in charts][26]
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[![Monetary Policy Committee members: the hawks, the doves and the in-
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betweeners][27] ][7]
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### [Interest rate split: how they voted][7]
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[![][28] ][29]
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### [Top 10 economics stories of 2010][29]
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[X][10] Share & bookmark
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Delicious Facebook Google Messenger Reddit Twitter
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][11]
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Share:
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* [ ][10]
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* [ ][12]
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* [ ][13]
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* [Tweet][14]
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* Advertisement
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![][30]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][31] [blog
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comments powered by Disqus][32]
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[Market Data »][33]
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sponsored features
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3. [BMW blames speculators as aluminium costs rise][36]
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4. [US consumers in spending retreat][37]
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Advertisement
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