Tuesday evening business bulletin

Jun 17 2008 By Andrew Mernin

The London market soared nearly 2% today as the Bank of England reinforced hopes that it will not react with knee-jerk interest rate rises to tackle inflation.

The FTSE 100 Index gained 104.7 points to 5899.3 in mid-session trading as investors took heart from Mr King’s letter, which was required as inflation hit more than 1% above the Government’s 2% target.

Traders were also buoyed by forecasts for a healthy start to trading on Wall Street later today. That reflected hopes the US Federal Reserve will hold off from raising rates if inflation remains in line with expectations.

Households should be braced for further surges in the cost of living after inflation hit the highest level since Labour came to power in 1997, the Bank of England warned today.

Governor Mervyn King said inflation could top 4% - more than double his 2% target - later this year as record oil prices and the prospect of higher gas and electricity bills hits home.

The warning came in an open letter to Chancellor Alistair Darling forced by the Consumer Prices Index (CPI) surging to 3.3% in May - the highest since the measure was first reported in January 1997.

Mr Darling said the Government was working on a ``genuinely global" response to soaring food and oil costs but was determined to keep a lid on inflationary pay deals.

``To return now to inflationary pay settlements would undermine rather than raise people’s living standards with a damaging circle of wage increases eroded by steadily rising prices," the Chancellor said.

Interest rates have been cut three times to 5% since December as the economy slowed, but spiralling oil and commodity costs have left CPI above target and tied the hands of the Bank’s Monetary Policy Committee (MPC).

Lloyds TSB launched a drive today to try to reunite customers with £69m which is sitting in unused accounts.

The bank has appointed specialist search agency Tracesmart to track down the holders of more than 120,000 savings accounts, current accounts and commercial accounts that have not been touched for 15 years.

The average amount people have sitting in these accounts is £575, while one in 10 accounts has a balance of more than £1,000.

Over the coming months Lloyds will try to contact customers who have balances of more than £100 in inactive accounts.

If the address cannot be confirmed by the group’s initial search and the account has a balance of more than £1,000, it will try to track people down using sophisticated electronic tracing techniques, and in some cases manual searches will be carried out.

The pound at 4:30pm was US$1.9510 compared to US$1.9636 at the previous close while the euro at 4:30pm was £0.7945 compared to £0.7881 at the previous close.