Will the Rise in UK Inflation Affect Interest Rate Projections? - City Index

By City Index, PRNE
Tuesday, June 28, 2011

LONDON, June 29, 2011 -


UK inflation hit a new two-and-a-half year high of 4.5% in
April, whilst core prices rose at a record pace, hitting their
highest levels since records began in January 1997. Joshua Raymond,
Chief Market Strategist of City Index ( href="www.cityindex.co.uk/">www.cityindex.co.uk/),
analyses the increase and its likely impact on the UK economy:

“Most of the increase is weighted in big increases in alcohol
and transport,” states the href="www.cityindex.co.uk/market-analysis/">spread betting
expert. “Alcohol and tobacco prices rose on the month nearly 5%
and annually reached 8.9%, giving the component its highest annual
inflation in prices since records began.”

And what of the effect on interest rate projections? Mr. Raymond
continues: “Should inflation rally past the 5% mark over the
summer, it could send alarm bells ringing within the MPC that a
rate hike may be warranted to curb its excessive escalation before
the current market consensus of a hike to come at end of the

“Having said that, the language used in Mervyn King’s now
customary letter to the Chancellor of the Exchequer, George
, appeared to quash that potential by stating, “The MPC
judges that attempting to bring inflation to the target quickly
risks generating undesirable volatility in output.” So in truth,
the inflation figure, whilst rising more than expected, may
actually have changed very little.”

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Contact: Joshua Raymond, City Index, +44(0)20-7107-7002, joshua.raymond[at]cityindex.co.uk

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