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The strong growth figures are contributing to recent gains in headline inflation. The March consumer price index (CPI) headline number surged to 3.1 percent. The push above the 3.0 percent barrier in headline inflation triggered a requirement from the 1998 Bank of England Act, which states the Bank of England Governor must write a letter to the Chancellor explaining why inflation has pushed so far above the target level and what the central bank will do about it.

This April was the first time that action had been triggered since the BOE first gained its independence in 1998. Tim Mazanec, senior FX strategist at Investor’s Bank & Trust in Boston, sees the letter as a positive. “It is more objective than subjective and it cements expectations on Main Street,” he says. “The letter the BOE Governor wrote explains that inflation is likely to fall throughout 2007,” says Powell. The BOE view is that CPI will fall to its target later this year. April CPI revealed a slight moderation to 2.8 percent.