CONSUMERS were last night warned to expect another two years of price-rise misery, after inflation soared to a 16-year high of 3.8 per cent.
The bigger than expected half-point jump in June effectively rules out interest-rate cuts for hard-pressed homeowners and piles more pressure on Gordon Brown, the Prime Minister.
Stock markets worldwide have been reeling as a result of the credit
crunch and spiralling food and fuel prices. The billionaire investor George Soros said it was "the most serious financial crisis of our lifetime".
Economists now fear UK inflation, as measured by the consumer price index (CPI), could hit a peak of 5.1 per cent, and that it could take two years for it to fall back to its 2 per cent target.
The retail price index, which excludes mortgage payments, is running at 4.6 per cent. And the index of frequently purchased items is thought to be rising at 6.4 per cent.
Analysts warned the Bank of England's base rate was now likely to be held at 5 per cent for the rest of the year, despite earlier hopes that it would be lowered to cushion the economic downturn. Property experts urged the bank's monetary policy committee not to raise the rate as a quick fix.
News of Britain's spiralling inflation came as the US dollar hit a record low against the euro – threatening higher oil prices. The cost of crude is a key factor in prices across the board, as it not only affects motorists filling up at the pumps, but also hits firms of every description that require to ship their goods. However, oil prices later dropped.
Michael Saunders, of the analyst Citi, said: "Unless oil prices fall sharply, we expect CPI inflation to stay above 3 per cent until late 2009 and we doubt inflation will drop back to the 2 per cent target in the next two years."
He said it would rise "markedly" in the coming months and possibly peak at 5.1 per cent in January.
The Bank itself expects the inflation picture to get steadily worse this year – spiking above 4 per cent – as the surge in oil and commodity costs works its way through the system.
The analysts Monument Securities said the actual inflation felt by households would seem much higher – as the price rises for frequently purchased goods were at about 6.4 per cent. The reason reported inflation is lower is because it takes in luxury goods, which are rising at a much lower rate.
The big increases that fuelled the CPI were on food, petrol and gas and electricity. They were partially offset by a lower rise in mortgage payments than last year and a downward impact from sliding property prices.
Meanwhile, David Cameron, the Tory leader, set out the economic recovery plan his party would follow in government. It included introducing US-style "Chapter 11" bankruptcy laws for struggling businesses, cutting stamp duty, scrapping plans for raising road tax on older cars, and a "fair fuel stabiliser" – which would cut duty as oil prices rose, and increase it as prices fell.
Darling in plea for pay restraintSOARING inflation could trigger demands for wage rises – which risk exacerbating the economic gloom, the government warned yesterday.
Alistair Darling, the Chancellor, called for restraint, saying big pay rises would mean "everyone, especially people on lower incomes, would suffer".
Pay inflation has been muted so far. Last month, data showed overall wages growth actually fell 0.2 points to 3.8 per cent during the year to April.
However, wage negotiations are typically based on the retail price index – which leapt to 4.8 per cent last month, from 4.4 per cent in May. The next wage growth figures are out today.
Death toll for region hits 19 this yearFLORAL tributes were yesterday left at the scene of the horrific crash which brought the total number of fatalities on Grampian's roads this year to 19. Last year, 36 people were killed on the region's roads, compared with 62 fatalities in 2006.
Superintendent Harry Thorburn, head of roads policing with Grampian Police, said: "We are deeply saddened that our officers have had to deal with three fatal road traffic collisions in just one week.
"This has been one of the blackest weeks on roads in the area for a long time and we feel for the families of the three young people who have died in this latest collision, as we do for the families of the three people who died earlier.
"This was a shocking and tragic event. I would urge drivers to take great care on the roads so they do not become victims, and their families do not have to endure what the relatives of these three young people are suffering today."
He added: "As our inquiries are at an early stage, we cannot comment on the circumstances of Monday's collision.
"A detailed examination of the scene has been carried out as part of the road collision investigation and all factors, including the road conditions, state of the vehicles and witness statements, will be taken into consideration.
"A full report will be submitted to the Crown Office for their consideration as to whether any criminal proceedings should follow."
The full article contains 888 words and appears in The Scotsman newspaper.
