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From: maceng2	2/14/2010 7:13:23 AM
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Bank concerns over inflation rise google.com An inflation spike above 3% in January is set to trigger a letter from the Bank of England to the Chancellor when official figures are released on Tuesday. The Bank has already warned of a temporary surge in prices as a return to the 17.5% VAT rate and higher petrol costs take effect. Governor Mervyn King has indicated that he will have to write to Alistair Darling explaining why inflation rose 1% above target last month. And in its latest inflation report, the Bank warned that consumer prices could rise still further - up to 3.5% - before falling back below the 2% target. In fact, economists at Investec Securities think the rate could spike at 4.2% in Tuesday's figures. The Consumer Prices Index (CPI) measure of inflation increased at a record rate in December to 2.9% - a bigger-than-expected figure that prompted speculation of an earlier interest rate rise. But the Bank's recent forecasts have indicated that the cost of borrowing is unlikely to rise soon, despite saying prospects remain "unusually uncertain". Even with rates held steady at 0.5% and no unwinding of its £200 billion quantitative easing programme, Bank forecasts still predict CPI will be below target - at around 1.8% - due to the huge amount of economic slack created by the recession. The inflation report also signalled minutes from the Bank's Monetary Policy Committee (MPC), out on Wednesday, could show a split in opinion over policymakers' recent decision to freeze interest rates and pause the QE scheme. The Bank said rate-setters had a "range of views" over the risks to inflation, while the weakness of the UK's crawl out of recession is also likely to have tested resolve. Six quarters of decline came to an end in the last quarter of 2009 with an upturn of just 0.1% and the Bank has subsequently reduced its growth forecasts.

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