Budget: Inflation provides headache for Chancellor

THE squeeze on household budgets tightened further last month as official figures revealed hikes in energy bills and fuel costs sent inflation to its highest level since last May.

The Office for National Statistics said Consumer Prices Index (CPI) inflation rose to 2.8 per cent in February, ending a four-month run at 2.7 per cent as the last of the major energy providers pushed through gas and electricity price rises.

Higher petrol costs were also behind the increase in inflation, which put further pressure on Chancellor George Osborne ahead of today’s Budget as CPI edged even higher above his 2 per cent target.

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Higher energy bills saw housing costs rise 0.5 per cent between January and February, while transport prices rose 1.2 per cent due to a 4p-a-litre surge in the cost of petrol and a 9 per cent increase in air fares.

CPI continues to outstrip wage growth in the UK and the gap is expected to widen as experts predict inflation will hit 3 per cent by the summer, with the weak pound adding to inflationary woes as it pushes up import costs.

But there is mounting speculation that the government’s 2 per cent target could be shifted, with Mr Osborne said to be preparing to overhaul the Bank of England’s remit in the Budget.

Facing calls to do more to help the economy, Mr Osborne is expected to launch a review paving the way for a change in the Bank’s mandate.

It is thought he may give policymakers a dual mandate not just to target inflation, but also include a measure of economic stability, or offer more room to hit the inflation target over a longer period.