Cazenove's Jeffrey: Inflation may cause policy dilemma

Rising inflation is applying upwards pressure on interest rates, creating the potential for an acute policy dilemma later in the year, says Cazenove's Richard Jeffrey.

The CIO's comments come as figures released yesterday showed CPI surged to 3.7% in December on the back of soaring commodity prices, hitting an eight-month high. Jeffrey says: "If the financial markets perceive the authorities are becoming less committed to reducing inflation, then the likely consequences will be that sterling depreciates and bond yields rise." He says depreciating sterling would put further upwards pressure on prices, while rising bond yields would boost funding costs for both the private and public sectors. "Together, these would undermine the growth potential of...