19 May 1998
Inflation hits six-year high

By FWi staff

INFLATION soared to its highest level for six years in April, fuelling fears that interest rates may have to be raised to slow down the economy.

Official figures released this morning (Tuesday) show retail prices rose by 1.1% last month to give an annual headline rate of 4.0%. Underlying inflation, which excludes mortgage interest payments, rose by 0.4% to an annual rate of 3.0%.

The rise was widely anticipated and is being blamed on increases in petrol duty and reductions in mortgage interest relief (MIRAS). The Pound remained steady following this mornings announcement and is currently trading at DM2.894 against the Deutschmark.

But although many experts expect inflation to fall over the coming months, some analysts fear that interest rates may have to be raised again to pull underlying inflation within reach of the Governments target of 2.5%

That would be likely to fuel an increase in the value of the Pound, further reducing European Union subsidies paid to farmers and sucking in agricultural imports.