Page last updated at 14:41 GMT, Tuesday, 18 March 2008

UK consumer inflation hits 2.5%

The Bank of England faces a slowing economy and rising inflation

UK consumer inflation reached its highest level in nine months last month, due to a new method for calculating energy bills.

The Office for National Statistics said the Consumer Prices Index (CPI) hit 2.5% on an annual basis in February, up from 2.2% in January.

But without the change in methodology, the figure would have remained at 2.2%.

Retail Prices Index inflation, which includes mortgage interest payments, remained the same at 4.1% last month.

But core inflation, which excludes oil and food, fell to 1.2% in February, the lowest level since August 2006.

The annual rate of 2.5% is above the government's target of 2% and highlights the challenge facing the Bank of England of tackling rising inflation as the economy slows.

"Although higher, this is no worse than markets expected," said Michael Saunders, economist at Citigroup.

"Nevertheless, the Bank of England will remain worried about the effect of rate cuts with high and rising inflation," he said.

Jonathan Loynes at Capital Economics said: "Inflation concerns will continue to limit the Monetary Policy Committee's ability to respond to the downturn in the economy."

Many analysts expect the Bank of England, which reduced interest rates in February for the second time in three months, to cut them again before the end of the year, perhaps as early as May.


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