UK Consumer Prices Continue To Rise

15/12/2009

By Lea Pachta

Data this morning has revealed that annual inflation in the UK rose at a higher rate than was forecast in November, reaching its highest point since May.

The Consumer Price Index, which is used as a measure of inflation, showed that annual inflation has risen to 1.9%. This is higher than the forecast of 1.8%, but still below the Bank of England’s target rate of 2.0%.

It is now the second consecutive month, in which the rate has increased. This is largely due to rising fuel and energy costs. It also falls in line with the recent forecast from the BoE that inflation will rise sharply in the short term, continuing in the early part of 2010 before falling back to the desired 2.0% level.

Duncan Higgins, senior analyst at Caxton FX says, "This morning’s news is supportive for the UK. Rising consumer prices are a good sign that the amount of spare capacity is starting to fall and weakens the case for the BoE to keep its key interest rate at a record low. It also represents a conclusive move away from fears of deflation, supporting sentiment toward the economy recovery."

The pound, having enjoyed a brief rally, failed to test the 1.12 level against the euro and has fallen back slightly. Ongoing concerns over the UK fiscal position are preventing it from pushing higher against the broadly weakened single currency.

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