Inflation hits two-year high

By JIM ARMITAGE
Updated:

 

INTEREST rates could be on the rise again after official figures showed underlying inflation at its highest for more than two years. RPI-X, which strips out mortgage payment costs, soared to 2.4% in May on the year compared with 2% the previous month, as wet weather pushed up the price of seasonal foods. The National Statistics figures, also influenced by dearer petrol, were well above expectations and come close to the Bank of England's 2.5% target.

Stuart Green at Credit Lyonnais said: 'On balance, UK rates are heading in one direction - up.' Only appalling figures on the US economy would prepare the Bank's interest rate-setters to make a further cut, he added.

Short sterling reacted violently to the data, indicating market expectations of an interest-rate rise in November. Headline inflation, which includes home loan repayments, surprisingly jumped to 2.1% against 1.8% the previous month.

The pound hit fresh 15-year dollar lows after Unilever chairman Niall FitzGerald warned of 'serious repercussions' if the Government continued ducking the euro issue. Sterling later bounced back from $1.3684, helped by a rebound in the euro.

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