Inflation hits 3.1%

17-Apr-2007

In news which may concern first time home buyers worried about future interest rate rises, the UK rate of inflation has reached 3.1 per cent, it has emerged.

As a result of the increase beyond one per cent above the Bank of England's target rate of two per cent, there is now an expectation that interest rates could be raised next month, which may impact upon the affordability levels of first time home buyers.

Furthermore, the increase to 3.1 per cent has now triggered the requirement for the Bank of England to write an open letter explaining the reasons behind the increase and the strategy to be implemented in response.

"A May hike is virtually certain. We're going to see more signs of underlying inflation picking up," said Michael Saunders, chief economist for western Europe at Citigroup in London.

"They may need one more hike after that," he added.

The letter to the chancellor will be published at 10:30 BST.

To find out about the different ways of financing a first home, see our section ‘Affording Your First Home’.

In related news, eurozone inflation rose by 0.1 per cent as result of energy price increases.

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