Bank of England Governor Mervyn King admitted yesterday that the Bank could do nothing to contain rapidly increasing commodity prices as major interest rate cuts could significantly reinforce the economic downturn.
In the Bank of England
's annual report, Mr King said: "It is likely that inflation will remain above three per cent until well into next year. The Monetary Policy Committee can have little impact on the path of inflation in the short term."
"It has not attempted to prevent inflation moving away from the target following the sharp rises in commodity prices," he continued. "To do so would have required a large increase in interest rates, with such a severe impact on output and employment that it would have risked inflation falling well below target further out."
Consumer prices index (CPI) figures published today revealed that inflation climbed to 3.8 per cent in June, up from 3.3 per cent in May and the highest inflation reading since the summer of 1992.
According to figures from the Office of National Statistics (ONS) the overall cost of products rose by 10 cent in the year to June – the first recorded double-digit rise for 20 years.
Compared to last year, consumers have to pay 34.2 per cent more to fill up their cars and 21 per cent more to fill up their food baskets at Sainsbury's, Asda or Tesco, which forces the cost of a family's weekly shop up by nearly £1,100 a year.
The figures emphasise the growing strain on consumers who are struggling to pay their day-to-day bills. It may come as no surprise then that the British Retail Consortium registered a fall in retail figures by 0.4 per cent from last year, with a considerable slack in furniture, homeware, clothes and shoe sales.
Research from Abbey mortgages
found that 86 per cent of Brits are taking extra measures to combat the squeeze of the credit crunch, which almost half (44 per cent) getting prepared to take on a second job outside their regular 9 to 5 job.
More than 80 per cent said they would cut back on non-essentials such as DVDs, books, clothes or evenings out to cover mortgage
payments and gas and electricity bills, and more than half of Britons have changed their holiday plans for this year.
In order to cope with the rising cost of living 13.6 million decided to sell some of their possessions, and 1.3 said they were planning to get rid of their cars because of rising fuel costs.
Phil Cliff, Director of Abbey Mortgages, commented: "With over eighty per cent of Brits taking measures to save money and earn extra cash, it's clear that belts are tightening all across Britain. Careful financial planning and budgeting can help combat the effects of rising inflation, and everyone should ensure that they are shopping around for the best financial products."
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