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Inflation may have topped 3%

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13/06/2008

Mervyn King, governor of the Bank of England, may already know whether he will need to write a letter to the Government next week because inflation has topped its 3% limit, according to New Star Asset Management’s economist, Simon Ward.

The Bank of England is tasked with ensuring that inflation remains within Government guidelines of 2-3%, and manages this by controlling the Base Rate.

Any movement outside of the inflation target triggers the need for the Governor to write a letter explaining the situation to the Government.

“May consumer prices figures are published on Tuesday but Bank of England Governor Mervyn King will already know whether the annual increase reached the 3.1% letter-writing level,” says Ward.

“Recent news suggests it did, and while a 3.1% Consumer Prices Index reading is not a done deal – “core” inflation jumped sharply in April and may partially retrace the increase in May. It would be surprising if the decline were sufficient to offset the above upward effects, however.”

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