UK inflation rises to 4.5 per cent

Figures show that Consumer Prices Index (CPI) inflation has risen from 4.4 per cent in July to 4.5 p

The UK government's targeted rate of Consumer Prices Index (CPI) inflation rose by 0.1 per cent in August from 4.4 per cent in July. The Retail Prices Index (RPI) measure also increased from 5 per cent to 5.2 per cent.

The Bank of England argues that the rate of inflation is above the target set by the government, largely due to the rise in VAT to 20 per cent at the start of this year, and past increases in global energy prices. The Bank's target rate for CPI is 2 per cent and it expects inflation to return to target in the next two years.

The Office for National Statistics (ONS) has attributed the rise in inflation to be a result of higher prices for clothing, footwear, petrol and also an increase in heating costs. It said that there had been a record 3.7 per cent monthly increase in prices for clothing and footwear between July and August.

Many analysts believe that the rate of CPI will continue to rise, possibly reaching a peak of 5 per cent, before coming down towards the end of this year or at the beginning of next year. Chris Williamson, chief economist at Markit, predicts that inflation will continue to rise as "utility bills continue to increase, putting further pressure on already-strained household budgets."

However, he believes that it will begin to fall by the end of the year and drop significantly at the start of next year "as those factors which have driven the rate up this year, such as January's hike in VAT from 17.5 per cent to 20 per cent, high oil and food prices and the depreciation of sterling all move into reverse."