Data set to show inflation squeeze

The continued squeeze on Britain's household finances will be highlighted on Tuesday ahead of a summer when inflation is expected to peak at 3.5%.

Consumer Prices Index (CPI) inflation rose to its highest level in nine months in February, hitting 2.8%, and while most economists believe it remained unchanged in March, this is set to be only a temporary reprieve.

Forecasts suggest CPI will rise as high as 3.5% by mid-summer, pushed higher by food prices and recent gas and electricity increases, while water bills are also due to go up next month.

Howard Archer, chief UK and European economist at IHS Global Insight, is pencilling in a rise to 3% for last month and for CPI to keep increasing for at least the next few months.

He said: "We expect CPI to have been pushed up further in March, primarily by reduced discounting by retailers compared to a year ago, while there also may be some upward impact due to higher prices for imported goods resulting from sterling's sharp fall early on in 2013."

The figures from the Office for National Statistics (ONS) come in a busy week for economic news, with retail sales data for March due out, unemployment statistics and the minutes from the Bank of England's latest rates meeting.

Policymakers voted to put the quantitative easing (QE) programme on hold at £375 billion once again in April, but the minutes are expected to show it was another close call.

Outgoing Bank governor Sir Mervyn King and fellow rate-setters David Miles and Paul Fisher are set to have repeated their calls for another £25 billion of QE at last month's meeting.

Better-than-expected figures from retailers, manufacturers and services firms have suggested Britain has been pulled back from the brink of a triple-dip recession. First quarter gross domestic product (GDP) figures due on April 25 are currently forecast to show growth of just 0.1%, following the decline of 0.3% in the final quarter of 2012.

With the recovery still struggling to gain momentum, many believe the Bank will eventually push the button on more QE, but may wait until next month's inflation report or even possibly the arrival of new Governor Mark Carney in July.

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