Greengates Builders Merchants

British Economy Is Shrinking!

British Economy Shrinks  

The CPI rate rose 0.1% on a monthly basis between December and January - the first time since records began in 1997 that inflation has risen between those two months.

The CPI figure usually falls in January in the wake of prices being slashed in the January sales.

Until now, the Bank of England has been confident that the pick-up in the inflation rate is temporary, with no need for an interest rate increase in the near term.

Last week, the Bank held interest rates at a historic low of 0.5% for the 23rd consecutive month.

The last set of UK growth figures showed that the economy contracted by 0.5% in the final quarter of 2010, which weakened calls for a rate rise.

The numbers are broadly in line with market expectations, but the issue for the MPC is that inflation has overshot its target for much of the last five years.

The British Chambers of Commerce believes that inflation will rise to 4.5% before it stabilises.

And it warns that although interest rates will probably have to rise later this year, the MPC should wait until the impact of the government's cost-cutting austerity measures are fully in place.

Meanwhile, Saga, a firm focused on serving the over-50s, called for an increase in interest rates "sooner rather than later".

It pointed out that older people often live on fixed incomes and rely on their savings for additional income.

Savings returns have declined as interest rates have remained at 0.5%.

Greengates Builders Merchants says “the rise in interest rates will be good for some and bad for others and not very good for business”.