Inflation will return to 2 per cent

In a statement to the treasury Committee earlier today, the Bank of England Governor Mervyn King stated that whilst he expects to see inflation top 4% this year, the outlook is for a return to the government’s target of 2%.

He stated that the immediate causes of the increase in inflation were the changes in food and energy prices in relation to other prices, but went on to say that these on their own cannot produce sustained inflation unless other prices and wages also rise at a faster rate. He went on to state,

"We believe that a slowdown in the economy is needed this year to ensure inflation returns to the target. Business surveys indicate that the economy is slowing. And the squeeze on real incomes resulting from higher food, energy and import prices means that growth is likely to remain weak this year. So the MPC continues to face, as it has over the past ten months, a balancing act. The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target. 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."

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