U. K. Inflation Stays Above Bank of England’s Target for Third Month

Inflation in the United Kingdom was 2.7% in January, 2003, marking the third month of inflation above the Bank of England’s target rate of 2.5%. The Bank uses the year over year change in the retail price index excluding mortgage interest payments as its measure of inflation. This index tends to be less volatile than the all items index. The recent rise in inflation is not expected to lead to a tightening of monetary policy. Inflation is not the Bank’s sole concern. Indeed, the recent slow down in economic growth led the Bank to reduce the bank rate by 25 basis points to 3.75% on February 6th in spite of the rise in inflation.

The all items retail price index including mortgage interest payments was up 2.9% in January over a year ago. Much of the recent rise in inflation can be attributed to the rise in the price of oil.. Both the cost of heating oil in the Housing and Household Expenditure component and the cost of motor fuel in the Travel and Leisure component have risen sharply in recent months.