Inflation figure catches analysts off guard

Many economists have been shocked to learn that consumer prices index (CPI) annual inflation increased in October.

The figure was recorded as 2.1 per cent, the first time it has risen above the government's two per cent target for three months.

The high price of food and fuel are said to be to blame for the increase, which could have a negative affect on the base rate of interest.

A number of analysts had predicted that the Bank of England would choose to cut the rate before the end of 2007 but this is now looking increasingly unlikely.

However, Howard Archer from Global Insight says that this move should not be ruled out yet.

"October's rise in consumer price inflation does not completely rule out a December interest rate cut, but it is likely to add to the Bank of England's caution about an early move given that headline consumer price inflation is likely to be pushed up further in the near-term by higher energy and food prices," he commented.

"We suspect that the Bank of England will not trim interest rates until February unless there are very clear signs over the next few weeks that the economy is slowing sharply.

"We continue to expect interest rates to be cut by 25 basis points in both February and May," added Mr Archer.

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