Responding to the latest inflation figures, showing a rise to 1.6% last month, up from 1.2% in November, James Sproule, Chief Economist at the Institute of Directors, said:
“Inflation is rising quickly as the price of oil goes up and the fall in the value of sterling feeds through to higher import costs. The current rate of increase suggests it will be only a matter of months before we break through the Bank of England’s two per cent target.
“Above target inflation raises the question of interest rate rises. Having only recently cut interest rates, the Bank is now left in the uncomfortable position of having to reverse course. So be it, they can’t wait forever and as 2017 goes on, pressure will mount on the Governor to start raising rates. Monetary policy should be set for the long-term, and that means policy makers need to look through the haze of Brexit speculation as well as consider the effect of rates in asset prices.
“Higher inflation also means pressure on companies to raise prices, so it’s very important that the Government holds off from introducing any tax or regulatory changes that further increase their costs on top of the new National Living Wage and Apprenticeship Levy. Ministers should also be thinking about measures at the Budget which help smaller firms affected by inflation pressures, such as raising the business rate relief threshold.”
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