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PPI: Inflation to remain above target until early 2012

Inflation will remain above the Bank of England's target rate of two per cent until early 2012, according to a leading economic forecasting group.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, has claimed that a number of factors could help lower inflation, including natural disasters in Russia and Asia.

However, he cited January's VAT rise of 2.5 per cent as the "key factor" which will result in the Consumer Price Index measure of inflation dropping from 3.1 per cent.

"As soon as this falls out of the calculation we expect inflation to drop back below target due to the large amount of spare capacity in the economy," he said.

Mr Goodwin added that this may take some time, saying: "We expect inflation to remain above target until early 2012."

His comments came as George Osborne announced budget cuts in yesterday's spending review, which will see £81 billion cut from public spending over four years.

Posted by John Fieldman

Having worked in the city for 19 years, John's main focus is interest rates and corporate finance. ADNFCR-2776-ID-800135680-ADNFCR

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