UK inflation has jumped to a six-year high of 4 per cent, putting back the prospects of a UK rate cut and keeping the pound at around 86p for the moment.
The inflation spike comes as most analysts had agreed that the British economy was slowing fast enough to preclude the need for another interest rate rise.
And coming on top of a jump in average earnings reported last week and a top of the range pay rise for Marks & Spencer staff, the prospects of wage inflation in the UK are still real.
The British figures will do little to reassure the Central Bank which will be worried about the risk of the importation of further inflation here. And with sterling likely to remain reasonably strong - with British rates less likely to fall - the prospect of currency strength heading off inflation is more remote.
Nevertheless, the Minister for Finance, Mr McCreevy, is insisting that he will not be deflected from election commitments to cut tax, despite strong recommendations from the European Commission and European Monetary Institute.
Speaking in Brussels, he said the Commission's guidelines were "just that, guidelines". But he also insisted that he was "very anxious not to contribute to inflation", and was "prudent" by nature. It was important to honour the obligations in the Programme for Government and in Partnership 2000 as social consensus was a key element in the Irish success story. Wage inflation has long been a major worry for the Bank of England and last week figures showed annual average earnings growth leapt to 4.9 per cent, its highest level since late 1992.
Now headline inflation - the benchmark against which most pay deals are struck - has leapt to a six-year high of 4 per cent in April.
"We thought there was some easing of pay pressure as inflation edged down earlier this year. But with this number, bargaining will be nudged up for at least a couple of months," Mr Alastair Hatchett at pay experts Income Data Services said.
The UK Treasury was quick to say underlying inflation, which rose to a nine-month high of 3 per cent, will ease back from July. Moreover, as Mr Jim Power, chief economist at Bank of Ireland, pointed out, the rises on petrol and housing costs will fade out eventually.
Immediately after the news, sterling strengthened but then fell back as the market became convinced that it merely meant a postponement of a rate cut rather than a rise.
According to Mr Power, sterling continues to pivot around DM2.90 which means that the pound is likely to remain around 86.5p to 87p for the moment. "There may be brief forays above that but they will be difficult to sustain."
