Inflation in Britain rose above the Bank of England’s comfort zone in January, official data showed Tuesday. But the country’s top central banker attributed most of the increase to higher sales taxes and fuel prices, and said the effect would likely be temporary.
The consumer prices index rose by 3.5 percent compared to January 2009, accelerating from the 2.9 percent rate in December, the Office for National Statistics said, in line with market expectations. Prime Minister Gordon Brown’s government temporarily cut the value-added tax to 15 percent on Dec. 1, 2008, to try to stimulate the economy by encouraging people to spend. The tax rate returned to the normal 17.5 percent on Jan. 1 of this year. Under its charter, the central bank’s Monetary Policy Committee must write a letter of explanation to the Treasury when inflation deviates by more than 1 percent from the targeted 2 percent rate. King wrote in his letter that in addition to the tax increase, a rise in the oil price of about 70 percent over the course of the year and the effects of a weaker pound also put pressure on consumer prices. Consumer prices actually fell by 0.2 percent in January from the previous month; while negative, the number was much smaller than the normal rate of decline between the two months. Still, the central bank “expects this to be a temporary deviation of inflation from the target,” King wrote in the letter to Alistair Darling, the chancellor of the Exchequer. The bank’s latest projections “suggest that, although it is likely to remain high over the next few months, inflation is more likely than not to fall back to the target in the second half of this year, as the short-run factors wane and the influence of spare capacity builds.”
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