Inflation expected to rise to 2.8%


Energy bill rises and increases in fuel costs are expected to push the latest inflation figure to 2.8% on Tuesday, well above the Government's 2% target.

The upward movement in the Consumer Prices Index (CPI) measure of inflation for February follows a four-month run when it has remained at 2.7%.%VIRTUAL-SkimlinksPromo%
Inflation has remained stubbornly above the 2% goal set by the Government since the financial crisis, but there is mounting speculation that Chancellor George Osborne is preparing to overhaul the Bank of England's remit in this week's Budget.

Facing calls to do more to help the economy, Mr Osborne is widely expected to launch a review that could pave the way for new instructions for the Bank for the first time in nearly a decade.

It is thought he may seek to give policymakers a dual mandate not just to target inflation, but also to include a measure of economic stability, or offer more room to hit the existing inflation target over a longer period. The Bank has already said it will tolerate above-target inflation to support recovery efforts, warning last month that inflation will rise higher and is not set to return to around 2% for three years.

Economists predict CPI will rise as high as 3.5% in the summer, with recent inflationary pressures compounded by the weakness of the pound as it pushes up import costs and squeezes household budgets further.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Consumer price inflation seems likely to rise modestly above 3% during the second quarter and stay there for much of 2013. Sterling's weakness, still-elevated food prices and higher energy charges will maintain upward pressure on inflation."

But he said CPI will start to ease back in late 2013 as muted economic growth reins in inflation. The inflation figures kick off a busy week for economic releases, with figures also due out on public borrowing, retail sales, unemployment and minutes from last month's Bank of England interest rates meeting.

This month's inflation release from the Office for National Statistics (ONS) will also be closely watched as it will for the first time include two new measures of inflation - the CPIH including housing costs and the RPIJ, which has been created to iron out the gap created by the different methods used to calculate the prices of goods for CPI and RPI (Retail Prices Index).

Capital Economics expert Vicky Redwood said it was likely that CPIH may eventually replace CPI as the main inflation figure, which could offer the Bank more leeway, as it has been running at around 0.2 percentage points below CPI.

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Inflation expected to rise to 2.8%

Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship.

Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so.

To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension.

In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.

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