Business and homeowners breathed a sigh of relief today as the Bank of England kept interest rates on hold at their record low of 0.5 per cent for the 25th month in a row.
But economists are warning that rising inflation fueled by spiralling oil prices could force the bank's rate-setting Monetary Policy Committee (MPC) to act next month.
Consumer prices index (CPI) rose to 4.4% from 4% in February – more than double its target of 2%.
However, this is against a backdrop of the first fall in consumers' disposable income in 30 years as a result of wages failing to keep up with the cost of living.
The Bank faces a dilemma over what to do on interest rates, with some economists warning that arising them at a time when the economy is so fragile could push the country back into recession. However, other commentators believe failing to act now will lead to a spell of potentially-damaging high inflation later this year just as the economic recovery is expected to take hold.
The difficulty MPC members face was underlined earlier when retailers Halfords and Carpetright warned that their profits are likely to be lower than expected this year as consumers rein in their spending.
