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Has inflation peaked?

Data this week would appear to indicate that UK inflation may have peaked as both input and output prices continue to fall. Inflation is currently 3.1% and well above the Bank of England's target of 2% although it would appear that recent concerns regarding inflation could well be overturned. So can we now forget inflation and concentrate on the UK economy?

While there is no doubt that the pressures that appeared just a few months ago with regards to inflation seem to be weakening, it would be dangerous to take our eye off the ball. However, it would appear that if inflation has ultimately peaked then UK interest rates could remain subdued for some time to come with the need for "cheap finance" from the economic upturn in the UK now the main challenge for the Bank of England.

Interestingly, data released this week would also appear to show while UK exports are slowing down, despite the relatively low-level of sterling in the currency markets, there has been a slight pickup in domestic demand. Whether or not it is realistic to expect domestic demand to remain strong in the short to medium term, with budget cuts and tax rises now kicking in, is a question for another day.

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