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Economic Research

Bank of England to Hold the Line Against Temporary Surge in Inflation

RGE View

From a trough at 1.1% y/y in September 2009, CPI inflation has risen to 4% y/y in January 2011, double the Bank of England’s (BoE) 2% target. Goods price inflation appears to have increased substantially since the beginning of 2010, but this will begin to fall back partially unless Sterling depreciates further. However, in our view high current headline inflation can be attributed to spikes in energy and commodity prices, tax rises and greater than expect pass through from currency depreciation (Figure 1). Indeed domestically generated inflationary pressure could well be[...]

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