Are UK inflation statistics starting to go up out of control?

December saw inflation rates in the UK shoot up by an entire percentage point, up from 1.9% in November to 2.9% in December. At the end of the month of December the UK government switched the VAT rate from the short-term reduced level of 15% back to the preceding 17.5% rate. A small rise in expenditure on the face of it, but over all, taking all VAT chargeable items into account, that jump together with the claims that numerous major retailers silently increased prices by more than the official increase in VAT means that it is almost assured that prices have gone up more still in January.

So what level will that leave the January inflation figures showing? No doubt, at least 3.0%, potentially well above 3.0%.

Does this mean that UK inflation figures are racing away out of control and what does it imply for the average citizen? Well, many huge lending banks are having to put up their standard variable rate mortgage rates. Why is this the situation if interest rates are steady and their lowest on record? The answer is fairly plain. The banks must appeal to loads of new savers and in a lot of cases they can only draw them by offering decent savings interest rates. Savers wisely investing in accounts paying 0.5% are losing a small fortune when the inflation figure is racing towards the 3.0% mark. In real terms, they are in reality losing 2.5% of their hard earned investment by keeping their cash sheltered away in the bank.

For that reason, these careful savers are having to look around carefully and with promising government backed savings and newly rescued banks being able to afford to pay out higher interest rates, other banks must raise the cash to follow suit. And there is only one simple way of doing this - raising the basic interest rates that they are charging their borrowers who have been the beneficiaries of unparalleled low rates for a long time.

This hasty and unexpected rise in the standard variable rates along with the pound's gradually promising revitalization on the crucial international money markets could just be the prompt that the controlling Bank of England's monetary policy committee might see as the incentive to start to raise the base rate gradually after months of stagnation. They might want to control spending whilst having to defend the wealth of savers from losing out on their precious investments. Their only instrument for controlling this would be to increase the base rate at a snail's pace.

Several observers think that the estimated base rate raise must come at some point in the future and that if it is sooner rather than later, it could moderate the final grief of the interest rises. They dread that if the interest rates are not raised in the near future, then they might have to raise a lot more in later months. Only time will tell.

Article Source: http://tk4.org

Keith writes for CompareMortgageRates.co.uk where you can find plenty articles about how to compare uk rates.

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