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The Times - February 13, 2008
Hopes of rate cut are dashed by inflation rise
Christine Seib and Dearbail Jordan
Rising inflation has put the possibility of further interest-rate cuts in doubt, offering little relief for homeowners struggling to pay their mortgages.
The Consumer Price Index - the official measure of inflation - rose to a seven-month high of 2.2 per cent in January, up from 2.1 per cent in December. The increased cost of fuel, with oil nudging $100 a barrel last month, prompted the rise, along with higher food prices. Fruit, particularly grapes and grapefruits, shot up in cost, as did furniture.
Economists said that the figure made further cuts in rates by the Bank of England less likely. Howard Archer, an economist at Global Insight, said: “We don't expect the Bank to cut interest rates again until May, unless it becomes clear that growth is slowing substantially.”
The central bank cut the base rate by a quarter-point to 5.25 per cent last week. This came on top of a reduction in borrowing costs in December. The Bank will put out its quarterly inflation report today and release the minutes of last week's rate-setting meeting on February 20. Yesterday's inflation indicators will be little comfort to first-time homebuyers, who spent 20.7 per cent of their income servicing their home loan in December, up from 17.9 per cent in the same month of 2006, figures from the Council of Mortgage Lenders showed.
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