13 June 2006, 15:33  UKґs Brown vows vigilance as inflation hits 2.2 pct in May

UK Chancellor of the Exchequer Gordon Brown insisted today that he would maintain "anti-inflation discipline" after new data revealed that inflation climbed above the government-set target last month. Inflation was 2.2 pct year on year in May, up from 2.0 pct in April, lifted by soaring domestic energy bills and rising motor fuel prices, according to official data released today. May's figure breached the Bank of England's target of 2.0 pct -- and was the highest reading since October 2005 when it stood at 2.3 pct. "Even as we cope with a doubling of oil prices and the rises in utility prices, we will maintain our vigilance against inflation," Brown told delegates at a London conference dedicated to Islamic finance. "British inflation remains lower than 2.5 pct inflation in the euro area and 3.5 pct in the USA. "We will be resolute in our anti-inflation discipline." Brown's comments were set against a backdrop of plunging global stock markets, sparked in recent weeks by investor concerns that Europe, Asia and the US would face fresh interest rate hikes to combat rising inflation. According to today's data, on a month-on-month basis the consumer price index climbed by 0.5 pct in May compared with 0.6 pct in April. Both the annual and monthly inflation readings were in line with analysts' consensus forecasts. Upward pressure came from soaring domestic gas and electricity bills, which have soared over the past year owing to increased wholesale energy costs. The surging cost of crude oil also fed through into rising petrol or gasoline prices, the statistics office said. The BoE had predicted last month that soaring oil prices would help push 12-month inflation above the 2.0-pct target in the next two years, before dropping back to around target. That had fuelled market expectations that it was gearing up for a rate hike at some stage this year. Last Thursday the central bank froze its key interest rate at 4.50 pct for the tenth month in a row, as it maintained a wait-and-see policy over the economy.

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