Bank of England “left exposed” by latest inflation figure

London, 19th Jan 2010, (Travelex Global Business Payments)
Travelex Market Analysis

- CPI hit 2.9 per cent for December 2009 –

Inflation figures shot past the Bank of England’s 2 pc target today, as the Consumer Price Index hit 2.9 pc for the last month of 2009, compared with the previous figure of 1.9pc in November 2009. This was largely unexpected by economists, who had forecast a figure of 2.4 pc.

Mark Bolsom, Head of UK Trading Desk at Travelex, the FX payments specialist, who forecast a 3 pc inflation figure back in December 09, said, “We predicted the 3 pc mark was approaching because high oil prices, a weak pound and a hike in VAT have all encouraged inflationary pressure.

“It will be interesting to see what the Bank of England makes of this latest inflation figure. Last week, Andrew Sentance, a member of the Bank’s Monetary Policy Committee, hinted that interest rates would be hiked if inflation was to rise suddenly.

“However, we feel that, in this current situation, it would be nigh on impossible to control inflation through raising interest rates. Whilst Britain faces down a period of fiscal tightening –tight credit controls and the prospect of higher taxes and spending cuts, the Bank would be unwise to raise interest rates and choke off recovery in its infancy.

“The Bank have left themselves exposed to inflation, as the economic situation is far too fragile for them to exercise traditional methods of inflationary control.”

Bolsom continues, “With that in mind, we are standing by our prediction that the banks will keep rates on hold at 0.5 pc until 2011.”

Sterling surged off the back of the data, settling at €1.1445 – its highest price against the euro since September 2009. Against the US Dollar, it is trading at $1.6368.

ENDS

Media enquiries
Jessica Buttress
Head of PR for Travelex Global Business Payments UK

Tel: 0208 415 4204
Mob: 077954 497129

Email: jessica.buttress@travelex.com.

Notes to editors

About Travelex

Founded in 1976, Travelex is the world’s largest non-bank foreign exchange and payments specialist; with operations across four continents and 6,000 employees worldwide.
Travelex holds key positions in its three main areas of activity: Global Business Payments (TGBP), Currency Services and Card and Mobile Payments. Every year, more than 35,000 corporate clients and 30 million customers trust Travelex to manage their foreign exchange requirements.

Recently recognised by TowerGroup research as Industry Leader for payments innovation for SMEs, Travelex currently handles international payments worth £40 billion annually for over 750 large corporate and financial institutions.

Visit www.travelexbusiness.com/uk for more information or email the press office at jessica.buttress@travelex.com