(Bloomberg) – – Aviva Capital, the Italy-based boutique broker, have told clients that its predictions of an inflationary spiral in the UK are more likely than ever to materialize.
In a scheduled client email, the firm said that recent figures from the Office of National Statistics had revealed that the annual rate of consumer price inflation jumped to 3.5 percent in the month of January, prompting Mervyn King, the Governor of the Bank of England, to write a letter to the Chancellor of the Exchequer, Alistair Darling explaining the reason for the rate exceeding the BoEs target of 2%.
Aviva Capital analysts said that any tightening in monetary policy was some way off given the high unemployment, the lack of available credit and disappointing retail sales. This, the email continued, meant that inflation was likely to increase in the months going forward.
The British Prime Minister, Gordon Brown, will likely have received the latest economic data with a grim silence as it is widely acknowledged that he is resting his chances of re-election to office on recovery in Europes second largest economy.
Aviva Capital said that with the headwinds facing the country, there is a very chance that the Bank of England and the Chancellor consider inflation to be the lesser of two evils and, with this in mind, clients should heed the firms standing advice to sell sterling for precious metals or commodity currencies.