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June 15, 2010    

UK inflation expected to ease in May

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by Kay Murchie

The Office for National Statistics (ONS) is scheduled to announce the UK inflation rate this morning, with analysts expecting the annual rate to be around 3.5%.

Last month, the ONS reported Consumer Price Inflation (CPI) rose to a 17-month high of 3.7% in April - far exceeding the 2% target for the sixth consecutive month.

However, analysts say the rate should ease, helped by weaker rises in food and petrol prices.

On Sunday, Bank of England policymaker, Andrew Sentance, said the Bank of England’s Monetary Policy Committee (MPC) faces some “interesting debates” in the latter half of 2010 as high inflation persists.

The CPI inflation rate is a benchmark for the MPC but last week, the Committee elected to keep UK interest rates on hold at the historically low level of 0.5% for the 15th consecutive month.

While the move was widely expected, Mr Sentance questions how long interest rates can remain at this historically low level.

Inflation is almost double the Bank’s 2% and has not fallen as quickly as hoped.

Despite this, most analysts expect no monetary tightening until the final quarter of the year.

Mervyn King, Governor of the Bank of England has previously dismissed fears that soaring inflation would demand a significant rise in interest rates in the months ahead.

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