The Office for National Statistics (ONS) has reported that the rate of inflation [CPI] rose in July to 4.4% from 4.2% in June, well above the 2% target rate and heading for the psychologically significant 5%.
Clothing and footwear prices measured for CPI saw their biggest annual increase in fourteen years. The Retail Prices Index (RPI) measure which includes mortgage costs was unchanged at 5%.
The Governor of the bank of England, Mervyn King, blamed the increase in the standard rate of VAT to 20%, and past increases in global energy prices and import prices. He also stressed that "the big risks currently facing the UK economy come from the rest of the world".
The Bank of England said last week that it remained confident that inflation would return to its target level in the next two years.
The ONS said one of the biggest factors in the increase was fees for financial services, which rose in July but had fallen in the same month last year.
July's inflation figures are particularly important because they are used to determine how much regulated rail fares can increase. Under the government's new formula, fares will be able to rise by RPI+3%, which means average fares will be able to go up by 8% next year.
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