Inflation up sharply and set to go higher

Nia Williams

December 15, 2009

Mark Bolsom, Head of UK Trading Desk at Travelex, the FX payments specialist, suggested inflation figures could climb as high as 3 per cent in the upcoming months. “We expect figures to continue climbing, as rising oil prices, a weaker pound and the reversal in VAT have caused inflationary pressure. We could very well see consumer price inflation hitting the 3 pc mark early next year.”

Despite this, the Bank of England remains calm about rising consumer prices, indicating that it expects the rise to be temporary.

However, Bolsom says, “As the world comes out of recession, demand for raw materials goes up, as do prices, which in turn has a knock on affect on inflation. Stronger oil prices have had an upward impact on inflation figures and we expect this to continue rising.”

Bolsom suggests CPI data supports the forecast that UK interest rates will hold at 0.5 pc until at least 2011 – and perhaps beyond this – and also “vindicates the MPC’s decision not to extend its quantitative easing programme, as a lower number would have given them further scope to pump more money into the financial system.”

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