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Pound rises to year high as inflation refuses to budge
16.06.09
Inflation is falling at a slower rate than anticipated, prompting fears that interest rates might start rising sooner rather than later.
News that inflation remained at a stubbornly high 2.2% last month - against 2.3% in April - sent the pound to a year high, up more than a cent against the dollar to $1.645.
Foreign exchange dealers said the rise in sterling came on the back of an expectation that UK interest rates might start rising from their current record lows of 0.5%.
The consumer price index still being up year-on year was said to be the fault of the Chancellor's Budget duty hikes on alcohol and tobacco in April and the re-emergence of £1 a litre at the petrol pump after a doubling of oil prices over the last six months.
Economists are expecting CPI to fall maybe to below the Bank of England's target of 2%. Howard Archer of Global Insight said: "Even if the current improvement in economic activity is sustained, growth will not be strong enough for some considerable time to lift underlying inflationary pressures."
James Knightley at ING said: "We remain fairly relaxed about the perceived threat of a rise in inflation given the lack of credit in the economy. We suggest that consumer spending will remain subdued for a prolonged period and inflation will soon break below 2% and stay there until late 2011."
Reader views (4)
Sterling seems to be all over the place. So much uncertainty and nobody really taking care of British economy. Rudderless country right now.
- Jacqueline, Hampstead, London
Wonder if it will reach $2 by the next election?
- Melvyn Windebank, Canvey Island, Essex
Will Brown instruct Darling to issue a tax rebate just before the next election in next year's budget - in the vain hope of course of retaining power - he seems to have done something similar with the expected increase in regulatory contrl over the City today which hasnt happened, but interestingly there appears to be little information on what Gorb and Mandy have agreed to with Brussels, gets curioser and curioser.....
- Wallytrader, London
It has to better than recession!!
- Jonnie Of Brixton, brixton,london,england
