Inflation worries will eventually prove misplaced

Markets have continued to respond reasonably positively to the further signs of recovery in the global and UK economies. But concerns are starting to emerge that central banks may leave policy conditions too loose for too long, encouraging the build up of asset price bubbles and allowing price pressures to increase. Ultimately, the vast amounts of spare capacity in the economy should ensure that such inflation worries are not realised. Nonetheless, with headline consumer price inflation heading temporarily higher, they may well intensify before they start to fade again. This could make for a rather more challenging backdrop for markets over the next few months.