Inflation could hit 5% this year
Share
Mervyn King, the governor of the Bank of England, has warned if utility prices rise further later in the year, inflation will reach 5%.
In the Bank’s latest inflation report out today, King says inflation could peak at 5% before falling back through 2012 and into 2013.
He says: “Although inflation fell to 4% in March, it remains uncomfortably high and well above the 2% target. And there is a good chance that, if utility prices rise further later in the year, inflation will reach 5%, before falling back through 2012 and into 2013.
“Inflation is being pushed up by a range of influences – primarily the past rises in commodity and import prices, as well as the increase in the standard rate of VAT.”
But King says although inflation remains volatile, with sharp month-to-month movements, the Monetary Policy Committee needs to look through such short-term fluctuations and focus on the outlook in the medium term.
He adds: “As the economy gradually recovers from a deep recession, and rebalances towards a more sustainable path, the outlook for growth and inflation is likely to remain unusually uncertain. Perfectly reasonable differences in judgements regarding the size and nature of the forces affecting the economy can have a material impact on the outlook.
“No one knows how the economy will evolve over the next few years - nor how policy will need to respond. But I can assure you that the committee is united in its determination to ensure that inflation returns to the 2% target in the medium term.”
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
Readers' comments (3)
LD consulting | 11 May 2011 12:21 pm
Given that economic forecasting is one of the responsibilities of the Bank of England, is it reasonable for the Governor to say "I don't know what will happen with the economy!".
More importantly, what kind of message does this give to the markets ?
Unsuitable or offensive? Report this comment
Luke Atkinson | 11 May 2011 1:53 pm
Inflation is no longer a UK issue that can be managed by the Monetary Policy Committee, it is a global issue that is impacted by markets and prices all over the world.
One thing is for sure. If, and when, the interest rates are raised, the number of repos will go through the roof. The number of clients who were placed with a non conforming lender pre Aug 2008 who are sat on a Libor or BBR tracking SVR who cannot absorb a rate rise of 2% or more is staggering.
Remortgaging is not an option for them as they are not credit worthy or cannot prove income and they have not used this lull in rates to repair their credit files or reduce their mortgage balances. The lenders they are with are no longer in the Uk lending market and will not offer them a new rate.
Worrying times lay ahead.
Unsuitable or offensive? Report this comment
Ben Rogers | 12 May 2011 4:32 pm
Very good comment Luke! Totally agree with everything you say!
Unsuitable or offensive? Report this comment