Household squeeze 'to worsen'

The Bank of England governor made clear today that the squeeze on household budgets will only get worse. Sir Mervyn King said he expected inflation to rise to three percent or more by the Ssummer and stay above target for another two years.

Inflation driven by energy bills, tuition fees and food

Inflation figures out yesterday remained unchanged at 2.7% despite a strong performance from high street retailers, economists said.

Hikes in energy bills and tuition fees are behind the high rate, as well as air fares and a recovery in alcohol and food prices.

Figures from the British Retail Consortium suggest the high street performed far better than expected, driven by heavily discounted clothes and shoe prices over the Christmas period.

Howard Archer, chief UK and European economist at IHS Global Insight, said that the weak pound was also a factor.

Bank of England expected to lower growth forecast

The Bank of England is expected to downgrade its growth forecasts today and warn of more financial pain for households after figures confirmed inflation remained above target last month.

A bus is seen outside the Bank of England in central London
A bus is seen outside the Bank of England in central London Credit: Lewis Whyld/PA Wire

Economists predict central bank boss Sir Mervyn King will paint a grim picture of rising inflation and low economic growth when the latest quarterly forecast is released.

The Bank's Monetary Policy Committee has warned that inflation Is likely rise in the coming months and might remain above the 2% target for another two years.

The outlook for the British economy in 2013 has already been downgraded in November's report to around 1%, but could be downgraded again.

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