OFFICIAL figures this week are expected to show that rising oil prices have contributed to an increase in inflation, although economists believe retail sales volumes will have edged up despite the squeeze on consumer spending.
Lower petrol prices helped moderate the pace of inflation in April, but concerns are mounting that the crisis in Syria could escalate, dragging in other countries across the oil-producing region, and Brent oil futures have rebounded above $105 a barrel.
Howard Archer, chief UK and European economist at IHS Global Insight, said Tuesday’s figures are likely to show that the renewed pressure from oil has pushed the Consumer Prices Index to 2.6 per cent for May, up from the previous month’s 2.4 per cent.
He added: “Inflation is likely to move modestly higher over the next few months, but it may not even reach 3 per cent during the summer. This is significantly below the 3.5 per cent peak that had previously seemed likely.”
Despite concerns over rising prices, Archer said that he expects the Bank of England to press ahead with more quantitative easing (QE) over the coming months under the leadership of new governor Mark Carney, who replaces Sir Mervyn King on 1 July.
The Bank kept its QE programme on hold at £375 billion earlier this month, and this week’s minutes from the Monetary Policy Committee (MPC) meeting will be inspected closely to gauge the prospects of printing more money.
King, along with fellow MPC members Paul Fisher and David Miles, has been outvoted since February in calling for an extra £25bn of asset purchases, but Barclays economist Simon Hayes said Carney’s arrival “is not in itself a guarantee that the MPC will embark on another QE expansion”.