Inflation likely to have hit 4.2pc in April as oil surges

The strength of the UK’s recovery fell under increased scrutiny last week when the Bank of England slashed its growth forecasts.

The Bank was the latest body to revise its outlook for the country, following on from the Office for Budget Responsibility, the International Monetary Fund and the Organisation for Economic Co-operation and Development.

Elsewhere, minutes published this week are expected to reveal no change in the voting position among policymakers at the Bank over interest rates.

Official figures released tomorrow are expected to show the rate of inflation increased to 4.2 per cent in April as surging oil prices continue to exert pressure on the cost of living. Inflation unexpectedly slowed from 4.4 per cent to 4 per cent in March, as hard-pressed retailers slashed prices to pull in cautious consumers.

But commentators and policymakers at the Bank of England, where Mervyn King is the Governor, have warned that the cost of living is likely to peak at 5 per cent before it starts to retreat back to the Government’s 2 per cent target over the next two years.

Oil prices continued to climb in April as civil war in Libya constricted supplies, while indicators from the British Retail Consortium (BRC) showed food prices rising.

As a result, economists widely expect the Office for National Statistics (ONS) to confirm inflation returned to 4.2 per cent in April.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “We suspect inflation eased back in March partly due to the fact that Easter occurred in April in 2011 but in March in 2010. This is likely to have led to different timings in the seasonal rises of some prices, for example air fares and hotels.

“Furthermore, petrol prices rose further in April, while food prices also likely increased.”

Looking further ahead, Mr Archer expects inflation to continue rising – particularly after the Bank’s warning that utility bills could rise by as much as 15 per cent.

He said: “Consumer price inflation will hopefully gradually start trending lower in the final months of 2011 as the upward impact from VAT developments, high energy, commodity and food prices, and sterling’s past sharp depreciation wanes.”

The number of unemployed people in the UK is expected to have dropped again in the three months to March, but economists believe this trend is likely to reverse.

Unemployment is forecast to have fallen by around 17,000, to 2.475 million in the period, a rate of 7.8 per cent, while the number of people in work is expected to increase by 120,000 to 29.2 million.The number claiming Jobseeker’s Allowance is also expected to have declined by between 4,000 and 10,000.