Governor forced to write letter by inflation surge

Bank of England governor Mervyn King will be obliged to write an open letter to the chancellor of the exchequer explaining the policy approach of the monetary policy committee after the consumer prices index (CPI) rate of inflation rose to 3.3 per cent.

The Office for National Statistics confirmed the increase from last month's three per cent level today, with the CPI figure forcing Mr King to prepare his letter under treasury rules stipulating that such an action was required if the CPI rate deviates from the two per cent target rate by more than a percentage point.

Global Insight chief economist Howard Archer forecast that the rate will be above three per cent for several months, stating that "consumer price inflation looks well set to reach four per cent this summer".

This scenario may make it considerably less likely that the Bank will be able to cut interest rates soon, meaning that those planning to move house may wish to consider the renovation of their existing one as an alternative to a situation which could lead to them taking on high mortgage costs.

Yesterday the Confederation of British Industry (CBI) provided a similar forecast over inflation, suggesting that there would be no rate cuts until next year.