UK Inflation unexpectedly rises in Feb

Data released yesterday showed Britain’s Inflation rate unexpectedly rose in February further above its target keeping expectations alive of another interest rate hike this year. Consumer Prices rose by 0.4% last month taking the annual rate to 2.8% still someway above the Central Banks 2.0% target.

The RPI measure of inflation hit its highest level since August 1991 at 4.6% which may worry policymakers as most wage negotiations are based on this measure. The main reason behind Februarys rise in inflation was the hike in air passenger duty announced in the pre–budget report in December which added 0.08 percentage points to the annual rate. Sterling strengthened against both the USD and Euro as a result of the inflations number.

The USD weakened on the currency markets yesterday after comments from The Peoples Bank of China Governor Zhou were interpreted as USD negative. He was quoted as saying that China does not intend to accumulate further foreign exchange reserves. However, some analysts feel the dollars decline was unwarranted and Zhou’s comment may have been misinterpreted.

Gordon Brown delivers his 11th and possibly last Budget today before he is likely to succeed P.M Tony Blair. He is expected to promise strong growth and impose a tight lid on spending. He is also reported to be considering doubling road levies on the most polluting cars like 4x4’s and a range of tax breaks on energy-saving technologies.

Also in the UK today the Bank of England release the minutes of the March policy meeting. Markets are anticipating the committee voted 7-2 to leave rates at 5.25%.

In the States tonight the U.S Federal Reserve will announce their latest decision on U.S interest rates. It is widely expected that they will hold at 5.25% but markets will focus on the accompanying statement for clues on the health of the economy and the outlook for interest rates.

The recent losses for lenders operating at the riskier end of the U.S. home loan mortgage market have raised fears of slowing economic growth and led some to call for a cut in rates sooner rather than latter.

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