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Consumer price inflation shows significant rise

Figures released by the UK authorities today show that consumer price inflation is rising at its fastest rate for six months with the November figure hitting 1.9%. The main reason is the recent rise in the cost of fuel and the fact that 12 months ago the oil price was significantly lower than today (giving a lower comparison base). However, even though this particular inflation measure is still below the Bank of England's 2% target it is expected to increase to 3% next month when we will see the temporary reduction in VAT removed by the government.

The retail price index, a different measure of inflation which strips out various volatile elements, recovered from a negative position in October to standard at 0.3% in November. The truth is that whichever inflation measurement you prefer to use, whether this be the overall inflation index or the core inflation index, the threat of inflation in the UK is starting to grow. If we continue to see inflation pushing further and further ahead in the coming months then inevitably we will see UK base rates start to rise and any potential economic recovery could be in danger.

It is very difficult to find a balance between base rates, inflation and economic prosperity because if one element is out of sync with the others it can have a very marked impact.

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