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Is the Bank of England scared of inflation?

Fears are growing regarding the potential threat of inflation with the Bank of England letting it be known that inflation could be a problem in 2010 and we could see a surprise increase in UK base rates. This comes despite the release of minutes from the April MPC meeting at which all members voted in favour of retaining base rates at their current low although concerns were voiced regarding inflation.

When you consider that the MPC meeting was held just days prior to the release of inflation figures for last month which showed a spike to 3.4% there must be more concern at the Bank of England today. So what can we expect in 2010?

There is no doubt that the need to maintain a relatively high level of "cheap borrowing" for the UK economy is sacrosanct to the continued recovery but the threat of inflation is getting stronger with the rising price of oil a major problem. Not only does the price of oil impact upon fuel costs but it also impacts upon transport costs for every item in your local supermarket, thereby feeding the monster which is inflation. When you also take into account the recent volcanic ash airspace lockdown, there is enormous upward pressure on food prices, non-food goods and services.

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