UK inflation at the highest level in Nine Months.

With sharp increases in the price of gas and electricity UK inflation has grown to a nine month high, which will limit the Bank f England’s ability to cut interest rates as inflation has now exceeded the 2 percent five month target.

The Office for National Statistics have said today that consumer prices have risen 2.5 percent compared to 2.2 percent in January, and this increase id the highest since May 2001.

Inflation has been driven by energy prices, as Britain’s six largest utility companies has seen increases of between 9 and 15 percent, without these changes inflation would have remained more constant at 2.2 percent.

Bank of England Governor Mervyn King said policy makers face a dilemma between slowing consumer prices or lower interest rates to stabilize economic growth.

King said that: “the bank’s biggest concern is a period of high, above- target inflation that feeds through to expectations” and with the current slowdown in growth the Monetary Policy committee face a difficult challenge as the pound the pound has risen as much as 0.5 percent against the dollar, trading at $2.0145 this morning.

With predictions of further interest rates cuts from the current 5.25 percent, the pound fell to a record low of 79.12 pence against the euro yesterday.

Policy makers have already revised their forecast for inflation last month and it may exceed 3 percent this year, making it 1 percent above the central banks target inflation rate.

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