U.K. Inflation Breaches 3% Threshold, Will BoE Raise Rates?
Inflation in the U.K. rose to 3.3% in May from 3.0% the month prior. It was the highest level since at least 1997 when records began. Now BoE Governor King must write a letter of explanation to Chancellor Darling as to why prices have surpassed the 2% target by more than 1% and what course of action will be undertaken to attempt to reverse its course. The only previous letter was written in April 19997. Rising food and energy prices continue to stoke inflation as food prices increased 1.7% after a 1.3% gain in April. Prices also increased across the broader economy as the core reading stripped of food and energy rose to 1.5% from 1.4%, which was the highest since October, led by a 1.6% increase in transportation and a 1.4% gain in household goods. The hotter then expected data will significantly increase the chances that the central bank will raise interest rates at their next policy meeting. Governor King was already on record predicting that he expected inflation to exceed the 3% threshold for several quarters. Therefore, he will try and prevent the necessity of writing more letters in the future. – John Rivera, Currency Analyst.