LONDON, June 21 Reuters The pound seesawed on Wednesday, initially jumping after data showed UK inflation accelerated more than expected in May, then reversing gains, as concerns flared over the Bank of England39;s ability to protect the economy from stagnating.

Sterling was up 0.1 on the day against the dollar at 1.281, having traded as high as 1.2803 right after the data. Against the euro , the pound was up 0.2 at 85.35 pence, compared with 85.50 pence right before the numbers.

Official data showed consumer inflation rose by 8.7 year on year in May, showing no change from April39;s 8.7 rate, but above expectations for an increase of 8.4.

But the core rate, which excludes food, energy, alcohol and tobacco, rose by 7.1, above expectations for a reading of 6.8, keeping the BoE under pressure to deliver a big rate rise when it meets later this week, but not so large it tilts the economy into recession.

If you look at this in context, with the labour market and average earnings increasing 7.2 in April when core CPI was 6.8, you39;ve now got core CPI in at 7.1 you39;re only going to see earnings increase further still and that39;s when you start to get those second and thirdround effects and that really gets embedded in the economy, TraderX strategist Michael Brown said.

Twoyear gilt yields , the most sensitive to shifts in expectations for interest rates and inflation, shot above 5 for the first time in at least 15 years this week, reviving memories of the market…