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Saturday 19th of February 2011
February 16, 2011    

Bank of England presents Quarterly Inflation Report

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by Kay Murchie

Presenting today’s Quarterly Inflation Report, the Bank of England’s Governor, Mervyn King, said inflation will continue to stay high in the first half of 2011.

Mr King warned inflation might even reach 6% but it will fall back next year.

The Bank’s report comes just a day after the Office for National Statistics (ONS) announced Consumer Price Inflation (CPI) rose to an annual rate of 4% in January – the highest rate since November 2008.

The latest figures takes inflation to double the Government’s target of 2% – where it has been for more than a year.

The Governor today reiterated that inflationary pressures are arising from either external forces such as commodity prices, or temporary domestic factors such as the recent VAT hike.

The latest figure prompted Mr King to write a letter yesterday to Chancellor George Osborne to explain why inflation remains above target.

The CPI inflation rate is a benchmark for the Bank’s Monetary Policy Committee but only one or two members have voted for interest rates to be lifted from their current historic low to bring inflation down.

Last week, the Bank again opted to keep interest rates at the record low of 0.5% and the report suggests the Bank is still reluctant to lift interest rates because of the sluggish economic recovery.

The UK economy contracted by 0.5% in the final three months of last year - primarily due to the disruption from the heavy snowfall in December.

Meanwhile, the bank downgraded its growth forecast for the economy but stressed that a double-dip recession is unlikely.

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