Fears of fresh interest rate rises as inflation hits 10-year high

Published on Tuesday 17 April 2007 14:09

BRITAIN'S cost of living rose at its fastest rate for at least ten years last month, heightening the prospect of another interest rate rise next month.

Official figures from the Office for National Statistics showed the Consumer Prices Index (CPI), the official measure of inflation, rose 0.5 per cent to an annual rate of 3.1 per cent in March, 1.1 per cent above the Government's target.

The rate of inflation measured by CPI has not been as high as 3.1 per cent since records began in 1997. Analysts had forecast a steady annual reading of 2.8 per cent and the surprise surge is likely to reinforce expectations of higher borrowing costs this year, with forecasts ofr another quarter-point hike to 5.5 per cent coming as soon as next month.

Stewart Robertson, of Morley Fund Management, said: "This makes a May hike inevitable and risks more beyond that."

Last month's rise will mean that Bank of England governor Mervyn King will have to pen a letter of explanation to Chancellor Gordon Brown for the first time.