Midland business leaders have pleaded with the Bank of England to rule out interest rate increases after inflation jumped to 4.4 per cent, more than double the official target and the highest figure since 1991.
The increase in the Consumer Price Index, the official measure of inflation, was due largely to a 13.7 per cent hike in the price of food.
It means the Bank of England will come under pressure to raise interest rates, but business leaders in Birmingham, Solihull and the Black County warned that further increasing the cost of borrowing would make conditions even more difficult for employers.
Separate figures published revealed that house prices are falling faster in the West Midlands than any other region of Britain.
The official house price index, published by the Government, showed that prices fell by 1.9 per cent in the region over 12 months. Only Northern Ireland recorded a higher drop. Across the UK as a whole, prices rose by 0.6 per cent.
Gordon Brown is coming under pressure to help families struggling to cope with rising fuel prices, with Labour MPs demanding a windfall tax on utilities which recorded multi-billion pound profits.
Khalid Mahmood (Lab Birmingham Perry Barr) and Richard Burden (Lab Birmingham Northfield) are among 47 Labour MPs to sign a statement organised by think-tank Compass calling for a tax to subsidise fuel for the poorest and help pay for homes to be insulated.
BP announced profits of £8.7 billion in February, while Shell recorded profits of £13.9 billion, equivalent to £1.5 million an hour.
The Retail Prices Index, which includes mortgage payments, reached five per cent in July, up from 4.6 per cent. This is the highest level since July 1991, and will encourage union demands for higher pay increases.
The Bank of England’s Monetary Policy Committee is charged with controlling inflation, but this would usually mean raising interest rates in order to reduce the amount of money chasing goods. It is due to meet next month to consider whether to raise rates.
At a time when access to credit is already limited because of global turmoil in the banking system, higher interest rates would add to the problems facing industry and the housing market.
Birmingham and Solihull Chamber of Commerce said the Bank faced “a dilemma”.
Katie Teasdale, senior policy adviser at the Chamber, said: “Many of the causes of the ongoing bout of inflationary pressures are global.
That means that in the short-to-medium term it’s difficult for the Monetary Policy Committee and UK government to tackle the problems.
“It seems likely some members of the Monetary Policy Committee will advocate increases in interest rates but businesses will be looking for sympathetic policies that seek to encourage growth as well as manage inflation”.
The Black Country Chamber urged the Bank to avoid a “knee jerk” response. Chamber President Peter Mathews said: “The Bank of England must be aware by now that it can’t control this kind of inflation increase with a knee-jerk interest rate rise, so we will continue to press for a confidence-boosting reduction instead. There could still possibly be hard times ahead for business and they need all the help they can get.”
The new figures from the Government’s House Price Index, which covered the period up to the end of June, showed the average property value in the West Midlands was £174,002, down from £179,112 a year previously.
Treasury Chief Secretary Yvette Cooper said the Government was doing what it could to mitigate the effects of the economic downturn but admitted there was a limit to what it could do. She said: “We are already cutting taxes this year by around £4 billion.
“That is in part to help support the economy at a difficult time, whether it is increasing tax credits or tax allowances, or freezing fuel duty at a rate below inflation.”
Conservative Party leader David Cameron claimed the state of the economy showed that Gordon Brown “has not been that effective” as Prime Minister or Chancellor.
He said: “Hundreds of thousands of families now have the threat of negative equity hanging over them, businesses are cutting back, unemployment is creeping up and this morning’s inflation figures are yet another worrying signal for families desperately trying to make ends meet.”