Inflation is expected to still be above the Bank of England’s target of 2.0 per cent. The Consumer Price Index update is due out this week, which the government uses to gauge inflation. Analysts have forecasted a minor drop in the inflation rate from 3.2 per cent to 3.1 per cent.

The cost of living has been pushed higher due to rising food costs, increased taxes, and an increase in energy costs. Bank of England Governor Mervyn King has predicted that inflation will not be close to target until 2011, and will dip below the target 2.0 within the next 24 months. This means there is a very slim chance, if at all, of the interest base rate rising for the next couple of months. This is good for those seeking a remortgage or paying mortgages tied to the base rate.

Other analysts believe it is only a matter of time before the rate changes. The Governor also warned of slowing growth next year and a choppy recovery. Some analysts believed that this might be a lead into a possible rise in the base rate to prevent a double dip recession. In both June and July one MPC member, Andrew Sentance voted to raise the standard base rate by 0.25 per cent moving it up to 0.75 per cent. While the move seems to be very little, some charity groups have warned government that families are on such tight budgets that with just a slight increase it could mean that 5 million people could no longer afford their mortgages.

Some economists believe the government’s budget cuts will cause inflation to remain above target for a few months and then will have a correcting measure on inflation.

The CPI is to be released today by 9:30 AM.