Hints of concern over latest UK inflation figures

Bank of England has been left exposed says one expert.

UK inflation has risen at record month on month rates, raising the spectre of a new economic headache.

Inflation figures shot past the Bank of England's 2 pc target today, as the Consumer Price Index hit 2.9 pc for the last month of 2009, compared with the previous figure of 1.9pc in November 2009. This was largely unexpected by economists, who had forecast a figure of 2.4 pc.

Mark Bolsom, Head of UK Trading Desk at Travelex, the FX payments specialist, who forecast a 3 pc inflation figure back in December 09, said, "We predicted the 3 pc mark was approaching because high oil prices, a weak pound and a hike in VAT have all encouraged inflationary pressure.

"It will be interesting to see what the Bank of England makes of this latest inflation figure. Last week, Andrew Sentance, a member of the Bank's Monetary Policy Committee, hinted that interest rates would be hiked if inflation was to rise suddenly.

"However, we feel that, in this current situation, it would be nigh on impossible to control inflation through raising interest rates. Whilst Britain faces down a period of fiscal tightening, tight credit controls and the prospect of higher taxes and spending cuts, the Bank would be unwise to raise interest rates and choke off recovery in its infancy.

"The Bank have left themselves exposed to inflation, as the economic situation is far too fragile for them to exercise traditional methods of inflationary control."

Bolsom continues, "With that in mind, we are standing by our prediction that the banks will keep rates on hold at 0.5 pc until 2011."

Sterling surged off the back of the data, settling at €1.1445 - its highest price against the euro since September 2009. Against the US Dollar, it is trading at $1.6368.