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Tuesday, 16 April, 2002, 08:49 GMT 09:49 UK
UK inflation edges higher
Cash register
Prices rose slightly in March
New figures have shown that UK inflation edged slightly higher in March.

UK underlying inflation
Sep 2001 2.3%
Oct 2001 2.3%
Nov 2001 1.8%
Dec 2001 1.9%
Jan 2002 2.6%
Feb 2002 2.2%
Mar 2002 2.3%
The annual rate of inflation excluding mortgage repayments rose to 2.3% in March, up from 2.2% in February, the Office for National Statistics said.

Inflation including mortgage repayments - which vary according to the level of interest rates - rose to 1.3% from 1.0% in February.

The figures have added to recent evidence that inflationary pressures are building up, but economists said an imminent rise in interest rates remained unlikely.

Tax impact

The underlying rate of inflation remains under the government's target of 2.5% a year - which the Bank of England is allowed to over or undershoot by a maximum of one percentage point.

"I don't think the (Bank of England) is biting at the bit to put up interest rates," said Adam Chester, economist at the Halifax bank.

He said that tax increases widely expected in this week's Budget would be sufficient to curb inflationary growth in consumer spending, making interest rate rises unnecessary for now.

Chancellor Gordon Brown is widely expected to usher in higher National Insurance contributions in an effort to raise an extra 5 - 7bn for the UK's cash-strapped national health service.

News of the extra contributions is expected to take the edge off UK consumers' eagerness to spend, fuelled in part by aggressive interest rate cuts last year aimed at staving off recession.

This would allow the Bank of England's monetary policy committee to leave borrowing costs at their current 37-year low of 4% for longer, improving the embattled manufacturing sector's recovery prospects.

Inflation fears

Most economists forecast that the next change in interest rates will be upwards, pointing to signs of persistent inflationary rises in consumer spending over the last year, much of it fuelled by debt.

Further evidence of a build-up in inflationary pressures came on Monday, when the British Retail Consortium said that High Street sales grew at their fastest monthly rate since 1996 in March.

The increase highlighted once again the imbalance between the UK's buoyant consumer industries and the manufacturing sector, which is emerging only tentatively from a year-long recession.

Last year's interest rate cuts were aimed at insulating the export-dependent manufacturing sector from the global economic downturn.

But with most UK employees working in the economicall- dominant services sector, which remained insulated from the effects of the downturn, the rate cuts also triggered a surge in consumer spending.

The service sector accounts for about two thirds of UK economic output and four fifths of its jobs.

Fuel costs up

Much of last month's increase in inflation was caused by higher petrol prices compared to the same period last year.

Crude oil prices have surged on world markets in recent weeks as a result of fears that the Middle East crisis could disrupt supplies.

The impact of higher petrol prices was partly offset by steady tobacco prices, which were rising this time last year as higher duties started to take effect.

See also:

11 Dec 01 | Business
UK inflation falls to record low
13 Nov 01 | Business
UK inflation holds steady
16 Oct 01 | Business
Sharp fall in UK inflation
18 Sep 01 | Business
UK rates cut to 1960s levels
14 Aug 01 | Business
UK inflation set to fall
17 Jul 01 | Business
UK inflation stays at two-year high
12 Jun 01 | Business
UK inflation hits two-year high
16 May 01 | Business
UK inflation to remain low into 2002
12 Feb 02 | Business
UK inflation posts sharp rise
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