UK consumer price inflation rises to 3.7 pct

[May 18, 2010]  LONDON (AP) -- Consumer price inflation in Britain rose to an 18-month high of 3.7 percent in April from 3.4 percent a month earlier, official figures showed Tuesday.

Bank of England Governor Mervyn King said he expected the index to fall back to the government's 2 percent target within a year, but cautioned that the outlook is "highly uncertain."

The Office for National Statistics said inflation was pushed up to its highest level since October 2008 largely as a result of increases in prices for clothing, footwear, food and beverages. The only large downward pressure came in the prices of furniture, furnishings and nondurable household goods.

Inflation continues to reflect a rise in sales tax and higher oil prices compared to last year, King said in a letter to Treasury chief George Osborne. A letter is required when inflation is more than 1 point above or below target.

"Inflation has been somewhat higher than expected over the past year and the (rate-setting Monetary Policy) Committee is conscious that the pace and extent of the prospective fall in inflation are highly uncertain," King wrote.

"Absent further price level surprises, it is likely that inflation will fall back to target within a year."

As Prime Minister David Cameron's new government develops its plans for tackling Britain's growing debt, there has been much speculation that even higher sales taxes -- perhaps rising from 17.5 percent to 20 percent -- will be part of the policy mix along with spending cuts.

Osborne, in his letter to King, mentioned only a planned cut of 6 billion pounds ($9 billion) in spending. The government is expected to lay out more details in an emergency budget due on June 22.

Marc Ostwald, analyst at Monument Securities, said inflation is been higher than Bank of England and market forcecasts for so long that any forecast that the consensus view that inflation will fall in the second half of the year "looks to be the most perniciously willful act of self-deceit since the boom in sub-prime lending."

The statistics office said the retail prices index -- a measure widely used in wage negotiations -- rose by 5.3 percent in April. That was the highest level since July 1991 and way higher than March's 4.4 percent rate.

The retail prices index excluding mortgage interest payments was 5.4 percent higher than a year ago, the agency added.

[Associated Press]

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