CBI: Inflation to remain stubbornly high

Inflation will stay "stubbornly high" this year, pressuring the Bank of England to up interest rates from the second quarter, according to the Confederation of British Industry.

Rising energy and commodity prices coupled with higher VAT has fuelled inflation, with the CBI predicting it will average over 4% in the first three months of this year - far exceeding the BoE's 2% target for a second year running. The CBI predicts monetary policy will start to be normalised in the spring, with interest rates edging up to reach 2.75% by Q4 2012. A gradual interest rate rise along with the VAT increase falling out of CPI figures next year means inflation will fall close to target throughout 2012. Ian McCafferty, chief economic adviser at the CBI, says: "The economic...