Are UK inflation statistics starting to rise out of control?

December saw inflation rates in the UK rise by an full percentage point, up from 1.9% in November to 2.9% in December. At the end of the month of December the UK government reverted the VAT rate from the interim reduced level of 15% back to the previous 17.5% rate. A small rise in expenditure on the face of it, but over all, taking all VAT chargeable items into account, that shift together with the claims that various key retailers silently increased prices by more than the official increase in VAT means that it is almost definite that prices have gone up more still in January.

So what level will that leave the January inflation numbers showing? No doubt, at least 3.0%, maybe well over 3.0%.

Does this mean that UK inflation figures are charging away out of control and what does it mean for the average person? Well, numerous huge lending banks are having to put up their standard variable rate mortgage rates. Why is this the situation if interest rates are fixed and their lowest on record? The answer is quite plain. The banks must appeal to a lot of new savers and in a great number of cases they can only draw them by offering decent savings interest rates. Savers prudently investing in accounts paying 0.5% are losing a small fortune when the inflation figure is racing towards the 3.0% mark. In actual terms, they are actually losing 2.5% of their hard generated investment by keeping their cash sheltered away in the bank.

So, these cautious savers are having to look around warily and with promising government backed savings and lately rescued banks being able to afford to pay out higher interest rates, other banks must raise the cash to follow suit. And there is only one simple way of doing this - increasing the basic interest rates that they are charging their borrowers who have been the beneficiaries of extraordinary low rates for a long time.

The more goods a man has, the more he thinks he needs.

This sudden and sudden rise in the standard variable rates along with the pound's unhurriedly rising recovery on the essential international money markets may perhaps just be the prompt that the controlling Bank of England's monetary policy committee may see as the grounds to start to raise the base rate gradually after months of stagnation. They might want to control spending whilst having to care for the wealth of savers from losing out on their precious investments. Their only means for controlling this would be to rise the base rate little by little.

Various observers think that the anticipated base rate raise must come at some point in the future and that if it is sooner rather than later, it could reduce the final pain of the interest rises. They fear that if the interest rates are not raised in the near future, then they may have to raise a lot more in later months. Only time will tell.