The pound fell against other currencies as UK Consumer Price Index (CPI) rose by more than expected in May, reinforcing the views of Mervyn King the governor of the Bank of England who warned that rising food and energy costs could push UK inflation higher than 4% by the end of the year.

UK CPI was up to 3.3% in May, compared to just 3% in April, this was mainly due to the rising cost of meat products and vegetables. An increase in energy bills was also an important factor, as well as rising book, stationery and foreign holiday costs.

Mervyn King went on to say that world agricultural prices increased by 60% and that retail food prices had risen by 8% in the past 12 months. These increases have encouraged people to cut their spending in other areas, such as luxury items.

The pound fell to $1.9620 against the dollar, down from $1.9270 and also yielded against the euro, which rose to 0.7895 pounds from 0.7880 pounds.