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Last Updated: Sunday, 4 June 2006, 23:54 GMT 00:54 UK
Inflation 'a blot' on UK economy
Inflation trends over the past year
The threat of rising inflation is "a blot" on prospects for the UK economy, an influential study has argued.

Accountants BDO Stoy Hayward said the strong housing market and an upturn in consumer spending would act as major drivers of future economic growth.

But it warned that inflation was a real concern and that the Bank of England could raise interest rates later this year to try to keep prices in check.

It said inflation was likely to remain above the government's 2% target.

Market instability

Consumer prices rose by 0.6% in April, their largest rise in five years.

Inflation fears in the US, and the likelihood that oil prices will remain high while the Iran's nuclear dispute with the international community remains unresolved, have caused instability on stock markets.

The most recent available data points to a possible interest rate rise at some point this year
Peter Hemington, BDO Stoy Hayward

Publishing its latest Business Trends Report, BDO Stoy Hayward said firms should be prepared for "potential turmoil" in the global economy caused by high oil prices and any further fall in the US dollar.

The sliding dollar - prompted by concerns about US deficits and global financial imbalances - makes life more difficult for British exporters.

"The most recent available data points to a possible interest rate rise at some point this year," said Peter Hemington, a partner at BDO Stoy Hayward.

The Bank of England's Monetary Policy Committee has kept interest rates on hold for the past nine months.

However, some experts believe a rise is likely if inflation moves too far above 2% - the government's benchmark target.

"While it is good to see that UK economic growth is improving, inflationary pressures remain a blot on the business horizon," said Douglas McWilliams, chief executive of the Centre for Economics and Business Research.

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