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by Staff Writers London (AFP) June 14, 2011
British 12-month inflation stood at 4.5 percent in May, unchanged from the level in April but nevertheless at the highest level for more than two-and-a-half years, official data showed on Tuesday. Consumer Prices Index inflation meanwhile rose by 0.2 percent in May from April on a month-on-month basis, the Office for National Statistics (ONS) said in a statement. All the data matched analysts' consensus forecasts. The ONS said that a drop in transport fares offset rises in food prices during May. At 4.5 percent, the annual rate is the highest since September 2008, when it hit 5.2 percent. Rising energy costs are also lifting inflation in Britain and abroad, threatening the world's economic recovery. Separate official data published Tuesday showed China's inflation rate had hit its highest level in nearly three years in May, prompting Beijing to further restrict bank lending to stem a flood of capital. China's consumer price index jumped to 5.5 percent year-on-year in May -- far above the official annual target of 4.0 percent -- as food costs soared on power shortages and crippling droughts in some areas. Analysts said they expected British inflation to rise further in the coming months, which could put pressure on the Bank of England (BoE) to raise its key interest rate from a record-low level of 0.5 percent. The central bank's target inflation target is 2.0 percent. Additional rises in food prices "along with recently announced further energy price hikes, are likely to take the headline inflation rate above five percent, and perhaps even above 5.5 percent, by late summer," said Jonathan Loynes, chief European economist at Capital Economics research group. ING Bank analyst James Knightley added: "In an environment of rising prices we still believe there is a good chance the BoE will decide to raise rates before the end of this year, albeit slowly and cautiously." The BoE last week opted against a rate increase, as the economic recovery buckles under the strains of weak growth and high inflation. The central bank slashed interest rates to 0.50 percent more than two years ago, in March 2009, to help drag Britain out of deep recession. It is a busy week, meanwhile, for key data releases, with monthly unemployment figures due Wednesday and retail sales on Thursday, which together should provide clues on the strength of economic growth in the second quarter. Gross domestic product expanded 0.5 percent in the first three months of 2011 but this only made up for a contraction of 0.5 percent in the final quarter of 2010, when the economy was hit hard by severe winter weather.
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