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EDITIONS
 Tuesday, 17 December, 2002, 09:39 GMT
UK inflation hits four-year high
Christmas shoppers in London's Oxford Street
Shoppers are paying more for clothes and shoes
Inflation in the UK has risen to 2.8%, its highest level for more than four years.

Retailers are telling us that Christmas is off to a slow start - what do they expect if they hike prices like this?

Geoff Dicks
RBS Financial Markets
Rising house prices helped push the figure above the Bank of England's 2.5% target rate.

The government's Office for National Statistics (ONS) said that the underlying rate of inflation, which excludes mortgage interest payments, rose to 2.8% in November from 2.3% the previous month.

And the headline rate of inflation, which includes mortgage interest payments, rose to 2.6% from 2.1%.

Interest rates are already at their lowest level for 38 years and the latest inflation figures make it unlikely that the Bank of England will make another cut in the near future.

Price hike

The ONS said housing costs were the main driver and accounted for half the rise in the headline inflation rate.

But higher motoring costs also had an effect.

And clothing and footwear prices were higher because special offers a year ago were not repeated this November.

Geoff Dicks, economist at RBS Financial Markets, said inflation was higher than he had expected, mainly because of the 1.3% rise in the price of clothes and shoes.

"Retailers are telling us that Christmas is off to a slow start - what do they expect if they hike prices like this?"

No interest rate cut

Jonathan Loynes at Capital Economics, described the figures as disappointing.

He said it raised the question of whether retailers were now beginning to put up prices.

But he said that if anecdotal evidence of early Christmas sales was correct, then prices could come down as soon as next month.

Economists thought the rise in inflation made it unlikely that the Bank of England's monetary policy committee would consider cutting interest rates to help the struggling manufacturing centre.

The committee has an inflation target of 2.5% but is allowed a one percentage point leeway in either direction.

Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
See also:

17 Dec 02 | Business
10 Nov 02 | Business
06 Jun 02 | Business
27 Nov 02 | Business
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