Inflation in the U.K. rose to 4.4% from 3.8% on an annualized basis and more than double the central bank’s target, supporting BoE Governor King’s contention that prices will remain above 4% for the foreseeable future. The 0.6% increase in prices was the most since the series began in 1997. Although the majority of the increase was due to rising energy and food costs, core inflation also rose to 1.9% from 1.6% as price pressures spread throughout the economy. Oil prices falling over 20% in the past few weeks will slow the appreciation, but food costs continue to climb jumping 12.3%. If inflation continues at this pace, Governor King will have to write another letter of explanation to Chancellor Darling at the end of the quarter. Therefore, the MPC may be forced to keep rates on hold until price appreciation shows signs of slowing. Expectations are that the country’s slowing growth will drag down prices and ultimately allow the BoE to cut rates, as they try and prevent the economy from slipping into a recession.- John Rivera, Currency Analyst.
