17th June 2008
The governor of the Bank of England has warned that inflation could rise to more than 4% by the end of this year.
Mervyn King's prediction came as the Office for National Statistics revealed a jump in consumer price index (CPI) inflation, from 3.0% in April to 3.3% in May.
Under the remit given to the Bank's monetary policy committee (MPC), which sets the Bank interest rate, governor Mervyn King must write an open letter to the chancellor in months when CPI inflation is more than one percentage point above the government-set 2.0% target.
In his letter, Mr King explained that increasing prices for food, fuel, gas and electricity had caused almost all of the 1.2-percentage-point rise in the CPI rate since December 2007.
"As things stand, inflation is likely to rise sharply in the second half of the year, to above 4%," he wrote. "CPI inflation is likely to remain markedly above the target until well into 2009."
"I expect, therefore, that this will be the first of a sequence of open letters over the next year or so."
Reacting to today's inflation figures, British Chambers of Commerce (BCC) economics adviser David Kern said that the BCC was no longer calling for a reduction in interest rates. "We remain convinced that calls for higher interest rates are totally misguided and should be rejected at this stage."
"All the evidence suggests that increasing inflation is due to short-term and temporary factors."
The Institute of Directors said that an interest rate rise was "getting a little too close for comfort", but chief economist Graeme Leach added that: "This is not stagflation this is stickyflation. We're not seeing the double digit headline inflation of the 1970s."
Bank governor's warning as Inflation jumps to 3.3%
Mervyn King's prediction came as the Office for National Statistics revealed a jump in consumer price index (CPI) inflation, from 3.0% in April to 3.3% in May.
Under the remit given to the Bank's monetary policy committee (MPC), which sets the Bank interest rate, governor Mervyn King must write an open letter to the chancellor in months when CPI inflation is more than one percentage point above the government-set 2.0% target.
In his letter, Mr King explained that increasing prices for food, fuel, gas and electricity had caused almost all of the 1.2-percentage-point rise in the CPI rate since December 2007.
"As things stand, inflation is likely to rise sharply in the second half of the year, to above 4%," he wrote. "CPI inflation is likely to remain markedly above the target until well into 2009."
"I expect, therefore, that this will be the first of a sequence of open letters over the next year or so."
Reacting to today's inflation figures, British Chambers of Commerce (BCC) economics adviser David Kern said that the BCC was no longer calling for a reduction in interest rates. "We remain convinced that calls for higher interest rates are totally misguided and should be rejected at this stage."
"All the evidence suggests that increasing inflation is due to short-term and temporary factors."
The Institute of Directors said that an interest rate rise was "getting a little too close for comfort", but chief economist Graeme Leach added that: "This is not stagflation this is stickyflation. We're not seeing the double digit headline inflation of the 1970s."
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