And experts warn that it could cost the average household £425 a year. Ahead of next week’s budget, the TUC calculates the poorest fifth of households spend twice the percentage of their disposable income on VAT as the richest fifth.

Food and children’s clothes are exempt but so are private health and private education. The TUC report said increasing VAT would feed  directly through to inflation, with possible interest rate rises leading to higher borrowing costs for companies and bigger mortgage bills for consumers.

TUC general secretary Brendan Barber said: ‘VAT increases don’t just hit the poor more, they also hit small firms, threaten retail jobs and by boosting inflation could lead to higher interest rates.’ Accounting firm KPMG added that a VAT increase could hit businesses, such as retail and financial services, hard. Malcolm Edge, head of national markets at KPMG, said: ‘Such a move could stifle consumer spending, hampering the recovery and it could cost the average household £425 a year.’  Article First  Published in Metro

Minutes published by the Committee last month show that the Bank may look to spend more on quantitative easing in the future, but wants to judge how effective its purchases have been before it commits more money to the programme.

Figures from the Office for National Statistics last week revealed that the UK economy had grown between October and December by more than was originally thought.

UK gross domestic product grew by 0.3% in Q4 according to the latest revision, up from the sluggish 0.1% growth initially estimated by the ONS. The quantitative easing programme was not expected to be boosted further this month as the Bank looks to curb rising inflation.

Inflation hit 3.5% in January, the highest level since November 2008 and up from 2.9% in December.

Bank of England

Ben Thompson, director of mortgages at Legal & General, says: “Political forces will significantly influence the overall economic picture this year – we’ve got an election coming up and inevitable tax hikes to tackle the gargantuan government debt. “This will hit the pockets of British families, tempering their spending and allowing the MPC to maintain rates at a low level for some time yet.” He adds: “The lurking threat is inflation though. “The Bank expects inflation to remain high for several months but only temporarily so. “There are some signs that inflationary pressure may build up over the course of this year and next year.”

Ray Boulger, senior technical manager at John Charcol, says: “The economic arguments continue to suggest a tracker mortgage is the right choice for most borrowers because the economy is in such a mess that low interest rates are here for some time yet. “Yet the election cannot be ignored.  The markets have been expecting a Conservative majority and what once looked like a foregone conclusion is now not so certain.  This may have a negative effect on fixed rate pricing.”

As ever, I hope this information is useful to you.

You may be aware that the Bank of England today decided to maintain the Base Rate at 0.5% for the 11th consecutive month. Mortgage rates have also remained stable over the initial 5 weeks of the year with a slight reduction in Fixed Rates, as lenders try and temp clients to fix while rates remain low.

We have seen an increase in higher Loan to Value products with 80% and 85% lending options competitively priced. Further information can be found here – http://news.bbc.co.uk/1/hi/business/8496830.stm