Inflation rise hits families

Official figures showed Britain was hit by a record rise in inflation last month, jumping to 4.4 per cent from 3.8 per cent in June. Economists stunned by the increase warned that the Bank of England's monetary policy committee may struggle to cut interest rates.

Millions of households are seeing their living standards fall due to high inflation and the likelihood of an interest rate cut from five per cent, leading to lower mortgage bills, is fading.

The Bank could even come under pressure to raise interest rates. Global Insight economist Howard Archer said: "This disturbing set of data will not go down at all well at the Bank of England."

Food and non-alcoholic drink prices jumped by 12.3 per cent in the year to July; the price of milk, cheese and eggs by 19 per cent; bread by 15.9 per cent, meat products by 16.3 per cent and coffee and tea by 5.6 per cent. Electricity and gas prices were both 12 per cent higher than a year ago.

Fuels and lubricants surged more than 25 per cent. The cost of education, including independent schools and university fees, rose by 13.2 per cent.

The 4.4 per cent rise in the Consumer Price Index was the biggest since its records began more than a decade ago. The Government's target was two per cent.

At his monthly press conference Tory leader David Cameron blasted Gordon Brown, as both ex-Chancellor and Prime Minister, over the rise. "Hundreds of thousands of families have the threat of negative equity hanging over them and this morning's inflation figures are yet another worrying signal for those desperately trying to make ends meet," he said.

"After everything we've heard from the Prime Minister about his fantastic economic record, RPI inflation is five per cent today, it was 2.6 per cent in 1997, and CPI is 4.4 per cent today and it was 1.6 per cent in 1997." Shadow Treasury minister Philip Hammond, said: "With the cost of living soaring and inflation doubling in six months, families are crying out for some leadership from their Prime Minister. But all we get is confusion, dithering and economic incompetence - with the prospect of yet more tax rises."

The more traditional measure of inflation, the Retail Price Index, which includes mortgage interest payments, hit five per cent, up from 4.6 per cent in June, and the highest since 1991. Bank of England governor Mervyn King will have to write a letter to Chancellor Alistair Darling next month if inflation remains above three per cent.

Economists predict it will soon hit five per cent despite a sharp drop in oil prices from $147 a barrel last month.

Business leaders pleaded for a cut in interest rates as the economic gloom in the UK deepens. David Kern, economic adviser to the British Chambers of Commerce, said: "Although it is difficult for the MPC to consider rate cuts while inflation is still rising, it should not hesitate to cut rates later in the autumn."

But Liberal Democrat Treasury spokesman Vince Cable warned the Bank not to bow to pressure to gamble on inflation falling. "There must be no attempt to undermine the independence of the Bank of England, even if its decisions prove to be unpopular in the short term," he said. "It's very clear we're in for a dose of stagflation, with the economy slowing abruptly and inflation too high and rising."