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New Star economist predicts 4% inflation

New Star chief economist Simon Ward says inflation could reach 4 per cent this year if energy prices continue to rise, ending hopes of early base rate cuts.

The prediction comes as figures this week show that inflation hit 3 per cent in April.

Ward previously forecast that inflation would reach 3.1 per cent in July, peaking at 3.5 per cent in September and remaining above 3 per cent until February 2009.

He says a 4 per cent peak now looks plausible if retail energy prices increase by 20 per cent.

Ward says a triple whammy of bad news this week makes base rate cuts unlikely. Big rises in factory gate prices and import prices and a warning from energy supplier Centrica that prices will rise could have put paid to hopes of rate cuts.

Ward says: “The view that the monetary policy committee should continue to cut rates because a weakening economy will ensure inflation is back below target in two years time is questionable.”


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