Inflation set to rise

The rate of consumer prices inflation will rise above 3% shortly, the governor of the Bank of England, Mervyn King, has said.

Presenting the Bank’s Quarterly Inflation Report, King said the increase in VAT and higher petrol costs would push up prices. But, he added, inflation would then quickly fall back below the 2% target.

In December, the official rate of inflation on the Consumer Prices Index (CPI) measure reached 2.9%. A further rise to above 3% means King is required to write a letter of explanation to the Chancellor of the Exchequer Alistair Darling.

But, according to the Bank of England’s projections in its quarterly report, inflation will fall again quickly and could remain below the 2% target set by the Treasury for several years.

The Bank remains cautious over the UK’s prospects of growth. “The UK economy has continued to bump along the bottom,” King said. “But a gradual recovery in output may now be in prospect.”

He added that economic growth was unlikely to return to the levels seen before the economic crisis for “a considerable period”.

The Bank’s programme of quantitative easing (QE), which now stands at £200 billion, but which has been put on hold for further expansion, has helped economic recovery, King said.

www.bankofengland.co.uk/publications/inflationreport/irlatest.htm

www.bankofengland.co.uk/publications/news/2010/008.htm