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Last Updated: Monday, 3 April 2006, 06:20 GMT 07:20 UK
Energy costs 'to drive inflation'
Gas meter
Gas bills have been rising across the UK
Higher energy bills will push inflation up to 2.3% between April and June as firms are forced to absorb the hikes by increasing their prices, a report says.

The figure, in a survey by accountants BDO Stoy Hayward, is above the 2% target set by Bank of England for consumer price index (CPI) inflation.

However, business confidence is at its highest for almost a year, says BDO.

It says that confidence in both the short-term and medium-term has grown, despite inflation threats.

But Chris Grove, partner at BDO Stoy Hayward, warned: "Businesses may need to err on the side of caution towards the end of the year as this economic upturn is expected to slow into 2007 due to a predicted weaker housing market and sluggish consumer growth."

Interest rates

Last week, Bank of England governor Mervyn King said that continuing high UK energy prices could force up inflation, and may pose a threat to the economy.

He told MPs that recent rises in UK energy prices would push up short-term inflation, erode the buying power of household incomes and slow the growth of consumer spending.

Many suppliers, including British Gas and Npower, have increased their prices in recent months. The BDO UK inflation index rose from 100.8 in February to 102.8 last month.

But in its latest Business Trends report BDO said a higher rate of inflation did not necessarily mean the Bank would increase the cost of borrowing, predicting that interest rates would remain on hold at 4.5% for the rest of 2006.

Meanwhile, its survey of 11,000 companies found confidence was rising. And its optimism index - an indicator of growth in two quarters' time - rose by 0.4 over the past month to 102.1 in March.

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