Thursday June 26, 10:18 AM
BoE'S King says UK slowdown has to be sufficient for inflation back to target
LONDON (Thomson Financial) - The Bank (TBHS - news) of England's governor, Mervyn King, said a slowdown in UK economic growth is needed if inflation comes back to target but that rate-setters have to be wary not to make it too deep.
Addressing MPs on the influential Treasury Select Committee, King said the Monetary Policy Committee (MPC (A050540.KQ - news) ) continues to face a balancing act as it seeks to bring CPI (NYSE: CPY - news) inflation, set to rise to above 4 percent in the coming months, back to the 2 percent target.
'The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target,' King said in his opening remarks.
'But at the same time, we need to avoid a slowdown that is so pronounced that it would pull inflation down, not just to the target, but below,' he said.
King repeated his, and the central bank's, view that inflation will rise further this year as a result of sky-high oil and wholesale gas prices.
'Over the rest of the year, the impact of these changes will continue to pass through the supply chain to household bills and consumer prices,' King said.
'The MPC's current judgement is that inflation is likely to rise to above 4 percent before the end of the year, although this projection is very sensitive to the path of domestic gas and electricity prices,' he added.
Despite the rise in inflation projected for this year, King stressed that it should only be a one-off increase to the inflation rate if other prices are wages held down.
King also said the MPC is focusing on indicators of inflation expectations, which he conceded have risen of late.
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