Could high inflation affect company accounts?

Date: 18th August 2010

Businesses may be affected by the news that inflation has remained high, despite seeing a small drop in July.

Figures from the Consumer Prices Index revealed that inflation dropped to 3.1 per cent last month, down from 3.2 per cent in June.

However, this is still well above the Bank of England's target inflation rate of two per cent.

This could affect businesses as, with interest rates remaining low, consumers do not have as much spending power as they would if inflation was reduced.

The governor of the Bank of England Mervyn King has written to the chancellor of the exchequer explaining why inflation is still above target, something he is obliged to do when inflation exceeds three per cent.

In his letter, Mr King said that "there remains a significant probability that I will need to write further open letters to you in the coming months".

The governor predicts that inflation will drop to two per cent by 2012.

Posted by Jacob Williams