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Tuesday, 21 March, 2000, 10:33 GMT
Inflation rises slightly
Inflation graph
Inflation is beginning to rise again in the UK, raising the prospect that higher interest rates will be needed.

The headline rate of inflation in February rose to 2.3%, compared with 2.0% in January.

The underlying rate of inflation, which excludes mortgage interest payments, also rose from 2.1% to 2.2%.

That is still below the government's target of 2.5%.

Rates puzzle

But with the economy set to grow strongly this year, and the possibility of a give-away pre-election budget, there will be pressure on the Bank of England to raise rates again.

The Bank has already increased UK interest rates four times in an attempt to curb inflation, but house prices are still rising sharply and wages are growing faster than the Bank would like.

But some economists doubt that the Bank will raise rates again unless the government budget is exceptionally generous.

"The data make it all the harder for the Bank England to justify another rate hike next month unless the Chancellor is especially generous in his budget, which we doubt," said Jeremy Hawkins of the Bank of America.

Housing costs predominate

The Office for National Statistics said that the largest upward effect on the index came from housing costs, as rising mortgage payments reflected recent rate rises by the Bank of England.

Footwear and clothing prices also increased after January's sale levels, the ONS said.

The eurozone measure of inflation, the harmonised index of consumer prices, also ticked higher, up from 0.8% to 1.0%.

Looking ahead, the biggest threat to inflation could be the rise in the oil price, which has tripled in the past year.

That was reflected in earlier figures on producer price inflation, which showed that the cost of raw materials was rising sharply.

The Organisation of Petroleum Exporting Countries (Opec) meets next week in Vienna to decide whether to continue its production cuts which have led to the sharp price increase.

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15 Feb 00 | Business
UK inflation eases
15 Feb 00 | Business
UK inflation puzzles
10 Feb 00 | Business
UK interest rates up 0.25%
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