Newspaper article The Evening Standard (London, England)

Bank's Warning on Inflation as Rate Hits 17-Month High

Newspaper article The Evening Standard (London, England)

Bank's Warning on Inflation as Rate Hits 17-Month High

Article excerpt

Byline: Hugo Duncan

BANK of England Governor Mervyn King today warned new Chancellor George Osborne that the outlook for inflation was "highly uncertain" after it hit a 17-month high of 3.7%.

In a letter to Osborne to explain why inflation was so far above the 2% target set by the Government, King said: "It is likely that inflation will fall back to target within a year."

But he added: "Inflation has been somewhat higher than expected over the past year and the monetary policy committee is conscious that the pace and extent of the prospective fall in inflation are highly uncertain. It will monitor developments closely."

Osborne urged King to remain "vigilant towards any upside risks to inflation" in the first exchange of inflation letters between the pair.

The Governor must write to the Chancellor when inflation deviates by more than one percentage point from the 2% target -- in other words, when it falls below 1% or rises above 3%.

The rise in inflation from 3.4% in March to 3.7% in April raised fears that the Bank may have to raise interest rates before the end of the year to bring prices back under control. Rates were cut to a record low of 0.5% more than a year ago to drive economic growth and prevent a damaging bout of deflation. …

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