Inflation Threat Still Looms
Inflation is still a fear among consumers. Despite signs of economic recovery, the fear looms. The Consumer Price Index (CPI) fell from 3.4 per cent to 3.2 per cent. The drop is credited to an increase in retail sales thanks to retailers cutting prices to draw spenders in and a drop in petrol costs.
The CPI remains above the Monetary Policy Committee’s (MPC) target of 2 per cent. The index has remained at 3.0 per cent or higher throughout 2010. The VAT being hiked to 20 per cent in January as expected to give another inflation increase. The recent index figure should come into talks at the next MPC meeting. MPC member Andrew Sentance voted for a rate hike for the first time in June and feels strongly an increase should happen. The MPC has left the base rate unchanged since November 2009. The rate is currently 0.5 per cent. With the base this low remortgage and mortgage lenders saw an increase in business at the end of 2009 and 2010. Currently applications for remortgage have increased slightly but mortgage loan approvals have fallen as lender tighten up and higher deposits of 30 per cent are being required.