THE UK’S inflation rate rose to 4 per cent in January – causing what could become a major savings crisis for British people.
The Bank of England had hoped that the rate of inflation would hit about 2 per cent – but the effects of the country’s last Budget, and in particular its decision to undo earlier cuts to its VAT rate – have meant the target has been more than doubled.
The BBC reports that the CPI has now been more than 1 per cent above its target for 14 consecutive months – and that the bank’s governor Mervyn King has written to the government explaining what can be done to restore price stability.
Among the other causes for the steep increase in the rate, King said, were the recent rises in commodity prices – particularly oil – and the depreciating value of the pound, which meant imported goods were priced relatively higher.
Any inability to stop the inflation rate from spiralling any further – with the rate having jumped from 3.7 per cent for the twelve months to December 2010 – will have massive impacts on the savings of UK citizens, which are in danger of losing their nest eggs.
The BBC says that the average rate being paid to that group, however, was a mere 0.83 per cent. People paying the higher 40 per cent rate of income tax, meanwhile, needed to earn a return of 6.67 per cent in order to keep up with the rising cost of living.
AFP reports that as a result of the heightened inflation rate, the Bank of England may have to hoist its basic interest rate – currently at a record low of 0.5 per cent – in order to restore stability and to maintain the buying power of the UK’s savers.
Forex.com research director Kathleen Brooks said the rate – when compared with that of China, where inflation hit 4.9 per cent last month – was a sign that the world’s major economies were “re-flating”.