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UK inflation starting to rise

News that the October consumer price index increased by 1.5% has caught many analysts off-guard as has the 1.8% increase in the core rate of inflation. It seems highly likely that consumer price inflation may reach 2.5% in the early months of 2010 although after that there is a difference of opinion as to which direction it will go.

As a consequence of the increase in inflation we are likely to see UK base rates start to creep higher in the months ahead, once the inflationary trend has been confirmed, although analysts expect rates to remain at 2% or below until at least the latter part of 2010. The increase in base rate is designed to offset the attractions of "cheap credit" as consumers move back into the market and spending starts to increase.

There is still some concern that the UK economy could well see a further slowdown in 2010 as extra capacity comes into play and places downward pressure on the price of goods and services. However, at this moment in time everything is up in the air and analysts are unsure as a group how the UK economy will perform in the immediate future and the medium term.

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