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Saturday 05th of March 2011
March 1, 2011    

Bank Governor: UK inflation will return to target

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by Kay Murchie

Bank of England Governor Mervyn King has today reiterated that inflation will return to its target of 2% but the timescale is uncertain.

His comments come after the Office for National Statistics (ONS) last week announced Consumer Price Inflation (CPI) rose to an annual rate of 4% in January – the highest rate since November 2008.

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

Inflationary pressures are arising from either external forces such as commodity prices, or temporary domestic factors such as the recent VAT hike, according to Mr King.

Soaring inflation has prompted many business groups to urge the Bank’s Monetary Policy Committee (MPC) to hike interest rates - however, the central bank has said the recovery is too fragile at this stage for a rate rise.

However, the nine-strong committee is divided over interest rates - three members voted for a rise at last month’s meeting.

Meanwhile, Mr King was today giving evidence about the economy to MPs on the Treasury Committee.

He said: “The broad judgment of the [Monetary Policy Committee] is that the increase in inflation would be expected to come back towards the target and the debate on the [MPC] is not about whether that will happen, but it’s about the speed and the extent at which it will come back to target.”

In terms of the recovery, Mr King highlighted that recent reports suggest activity did pick up in the first part of this year.

His comments come after figures today revealed manufacturing activity held its record high in February.

The closely-watched CIPS/Markit manufacturing PMI remained at 61.5 in February – which represents the highest reading since records began in 1992 and exceeded forecasts of 61.

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