Inflation on course to reach 5pc despite dip

InflATIon looks set to top 5pc this winter even after a surprise fall last month.

official figures yesterday showed the cost of living climbed by 3.1pc in September – slightly slower than the 3.2pc rise in August.

But analysts warned that it was the ‘lull before the storm’ with inflation expected to rise further above the 2pc target in the coming months as household energy bills continue to soar alongside the price of food and fuel.

The Bank of England is under pressure to raise interest rates from the low of 0.1pc to bring inflation back under control.

September’s surprise dip will deepen the divide between those who are keen for the Bank to act,

THE head of the German central bank is stepping down more than five years early.

Jens Weidmann, who took charge of the Bundesbank in May 2011 as the eurozone debt crisis raged, will leave at the end of the year.

The 53-year-old has been a critic of the European Central Bank’s ultra-low interest rates and money printing policies.

Announcing his exit, he urged ECB officials ‘not to lose sight of prospective inflationary dangers’. and those who worry a premature rate hike could stunt recovery.

Paul Dales, chief UK economist at Capital Economics, said the dip ‘feels a bit like the lull before the storm’. He added that it ‘probably won’t deter the Bank of England from raising interest rates from 0.1pc in the coming months’.

And James lynch, of Aegon Asset Management, said that inflation ‘could be above 5pc in the coming months’.

But Jane Sydenham, investment director at Rathbone Investment Management, said: ‘Putting rates up too quickly runs the risk that we kill off the economic recovery just as it gets going.’

She added: ‘It’s a delicate balance to manage and the risk of policy error is a real one.’