Inflation poses dilemma for Bank

THE dilemma facing the Bank of England over how to steer the British economy onto safer shores will become more complicated this week when the latest figures reveal only a marginal drop in inflation.

Economists expect the Consumer Prices Index, the most common measure of the cost of living, to record a fractional 0.1 per cent fall to 3.1 per cent - well above the Bank's 2 per cent target. Inflation has remained above 3 per cent all year, sparking warnings of a looming inflation crisis and heaping pressure on the Monetary Policy Committee to raise interest rates.

Research group Kantar Worldpanel increased concerns over the high cost of living last week when it warned that fires and droughts in Russia and the Ukraine would fuel a doubling of grocery inflation to 4 per cent by the end of the year as the prices of commodities such as wheat, meat and cocoa soar.

However, the MPC is also haunted by shaky economic growth. Business groups argue that it would be irresponsible of the bank to raise interest rates when households are faced with tax rises and major public spending cuts.

Last week the bank slashed its growth forecasts for the next two years, admitting that the recovery would be "choppy".