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Last Updated: Tuesday, 12 February 2008, 12:40 GMT
Food and petrol push up inflation
Fruit
Food prices have contributed to inflationary pressures

Rising food and petrol prices pushed up UK inflation in January, figures show.

Last month's Consumer Prices Index (CPI) inflation figure rose to 2.2%, up from 2.1% in December. The rate is the highest since June 2007.

The Retail Price Index (RPI), which includes mortgage interest payments, rose to 4.1% from 4% in December.

However, while price growth was strong, it was not as quick as many analysts had feared, boosting hopes of further interest rate cuts in the UK this year.

Below trend

The Bank of England cut UK interest rates last week to 5.25% from 5.5% in an attempt to prevent a major slowdown in the economy.

But the Bank signalled that it was unlikely to cut rates as sharply as the US Federal Reserve - which has slashed borrowing costs to 3% - because of fears over inflationary pressures.

"It will be some time yet before the MPC's inflation concerns evaporate," said Jonathan Loynes at Capital Economics.

Many analysts are predicting that the Bank will keep rates on hold in order to get a clearer picture of long-term economic and inflationary trends, and the impact slower growth will have on consumer prices.

"We do not expect the Bank to cut interest rates again until May, unless it becomes clear that growth is slowing substantially," said Howard Archer of Global Insight.

"Further out, we still expect interest rates to fall to 4.5% by the end of the year as we believe that the economy will see extended below trend growth and that this will eventually contain inflation."

Price pressures

The Office for National Statistics (ONS) said that the largest upward pressure came from the price of fuel.

Average petrol prices rose by 1.3p in January to stand at 103.9p per litre.

Food prices also contributed to the rise in inflation, particularly fruit such as grapes and grapefruit, the ONS said.

However, a number of factors helped to offset food and fuel increases, not least downward pressure on clothing costs and cut-price offers on the High Street aimed at luring consumers, analysts said.

"January's UK consumer prices figures suggest that, for now at least, retailers are largely absorbing the steep increases in costs seen over recent months in their profit margins," said Capital Economics' Mr Loynes. "Nonetheless, there is some encouragement here that weaker demand is doing the job of containing price pressures," he added.



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