Inflation gives Treasury a headache before Budget

THE Chancellor and the Bank of England were given a pre-Budget headache yesterday after inflation hit a nine-month high, writesHugoDuncan.

Official figures showed the consumer prices index rose to 2.8pc in February having held firm at 2.7pc since October.

Inflation has been above the 2pc target since December 2009 – resulting in a painful squeeze on living standards for millions of workers and pensioners. But it has not stopped the Bank holding interest rates at 0.5pc and pumping £375bn of emergency cash into the economy through quantitative easing in a desperate effort to stimulate growth.

George Osborne could today launch a review of the Bank’s remit or even tweak it to give the Bank further powers to get the economy moving.

Options include putting jobs and growth on an equal footing with hitting the 2pc inflation target – giving the Bank even more flexibility.

The arrival of governor Mark Carney, pictured, who succeeds Sir Mervyn King in July, could herald further changes at the Bank. Vicky Redwood, senior UK economist at Capital Economics, said: ‘We doubt that Osborne will do anything very bold on the fiscal front. The most important development could be any changes to the framework for monetary policy. This could make more explicit the flexibility within the current framework of inflation targeting. Or the inflation target could be supplemented with a clearer growth objective.’

The Bank is already considering a fourth round of QE and has even discussed cutting interest rates into negative territory.