Bank of England Governor Mervyn King said Britain faces a further bout of inflation and a muted economic recovery, and pledged officials will look through the volatility in prices to keep nurturing growth where they can.
“Inflation is likely to rise further in the near term and may remain above the 2 per cent target for the next two years”, King said. The BOE said today it sees inflation at about 2.3 per cent at the end of its two-year forecast period, and a “slow and sustained” recovery. “If necessary, we will do more”, King said. “We must recognise, however, that there are limits to what can be achieved via general monetary stimulus -- in any form -- on its own. Monetary policy works, at least in part, by providing incentives to households and businesses to bring forward spending from the future to the present.”
“Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the target in the medium term”, the BOE said in the report. The MPC said it “stood ready” to add to stimulus if needed. “Inflation has remained stubbornly above the 2 per cent target”, the BOE said. “Despite subdued pay growth, weak productivity has meant no corresponding fall in domestic cost pressures. And increases in university tuition fees and domestic energy bills have added to inflation more recently.”
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BOE-inflation report
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