Inflation likely to decline in 2009

Inflation is likely to hit the 4% mark in the second half of this year due to rising food, energy and fuel costs. The Bank of England has hinted that they are unlikely to raise interest rates to quell this in the short term however.

Inflation is now above 3% and the mandatory letter has been sent from the governor to the chancellor to explain why.

Unless there are further increases in oil and commodity prices, inflation is likely to peak by the end of 2008. The Bank of England is therefore working on the basis that if they raise interest rates now it will do more harm than good as it would potentially stall output further and lead to further unemployment.

The MPC aim to bring inflation back down to 2% within the next 2 years when the sharp prices in energy and food prices will have dropped out of the consumer price index inflation rate.

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