U.K. inflation on the rise

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U.K. April CPI surprised on the upside, moving even further outside of the Bank of England’s (BoE) comfort zone. The annual inflation rate, as measured by headline consumer price growth, bounced to 4.5% in April from 4% in March, setting a new post-crisis high and the third highest reading since 1992.

The following comments come courtesy of BCA Research:

“Although we continue to believe U.K. inflationary pressures do not have deep roots, and expect that looming massive fiscal restraint will sweep them away, readings like today’s increase pressure on Governor Mervyn King to be seen as doing something to combat them. King’s resistance to rate hikes has been constant, but his resolution could be tested by increasingly restive elements of the BoE’s monetary policy committee (MPC). Stay tuned for signs that the internal pressure is picking up, but we continue to believe that investors should lean against expectations of imminent BoE tightening.”

Source: BCA Research – Daily Insights Service, May 19, 2011.

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