Push on with money programme, says business group

The Bank of England must continue to pump money into the UK economy despite new inflation figures which show a rise in October, the British Chambers of Commerce (BCC) has said.

Pointing to what it called "temporary fluctuations", the business group said that the underlying weakness of the economy would mean that the pressures of inflation remained low in the medium-term, while the danger of a double-dip recession next year posed a more serious threat.

Its warning follows the Bank's announcement earlier this month that it would continue with its policy of quantitative easing (QE), injecting an extra £25 billion into the UK economy.

According to the Office for National Statistics, Consumer Price Index (CPI) annual inflation rose last month to 1.5% - up from 1.1% in September. This was driven in part by a smaller fall in fuel costs than the record 6.1% drop seen in the same period last year.

BCC chief economist David Kern said that the figures match the Bank's forecast that inflation will rise sharply - possibly to 3% - before falling next year.

"Given the serious risks facing the UK economy and the dangers of a double-dip recession in 2010, it is important for the MPC to persevere with an aggressive QE programme, and to consider special measures aimed at boosting bank lending to businesses," he added.

Meanwhile Retail Price Index (RPI) inflation - which includes mortgage interest and other household costs - rose from -1.4% to -0.8%.

IMAGE David Cheskin/PA Wire