Soaring cost of living adds to Bank woes

THE Bank of England was given an inflation headache yesterday after an unexpectedly fast rise in the cost of living.

Official figures showed the Consumer Prices Index rate of inflation rose from 3.4pc in February to 3.5pc in March.

It was the first increase for six months and severely dented hopes that the Bank would sanction another dose of money printing next month.

There was better news for the British economy from Washington, however, where the International Monetary Fund raised its 2012 UK growth forecast from 0.6pc to 0.8pc.

It was the first upward revision for some time with the IMF expecting Britain to be the strongest major economy in Europe this year.

The Fund predicted growth of 0.6pc in Germany and 0.5pc in France and declines of 1.9pc in Italy and 1.8pc in Spain.

‘The euro area is still projected to go into a mild recession in 2012 as a result of the sovereign debt crisis and a general loss of confidence,’ said the IMF in its World Economic Outlook.

The sluggish performance in Europe – the eurozone is forecast to contract 0.3pc this year – compares with growth predictions of 2.1pc in the US and Canada and 2pc in Japan.

The Bank has already cut interest rates in the UK to 0.5pc and pumped £325bn of emergency cash into the economy to boost growth.

But with the recovery faltering – the IMF was forecasting 2012 UK growth of 1.6pc in September – ministers may have been hoping for more.

However, analysts said inflation was unlikely to fall as far or as fast as the Bank hoped this year – making it difficult for the monetary policy committee to unleash more quantitative easing.