Threat of higher inflation still exists

Despite recent negative RPI figures, the threat of higher inflation has not dissipated. The Bank of...

Despite recent negative RPI figures, the threat of higher inflation has not dissipated. The Bank of England's (BoE's) forecasts suggest UK inflation will slide to 0.3% by 2011. RPI, a measure of headline inflation, recently fell into negative territory (-0.4% year-on-year) - its first annual fall since 1960. The BoE's biggest challenge is the prevention of further deflation. Still, the inflation rate may not fall by as much as expected. Sterling looks weak in the short term and could prove one of the BoE's few saving graces. High levels of government debt and central bank money are nece...