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BoE bemoans inflation woe

Jaimie Kanwar

The outlook for UK inflation has "deteriorated markedly", according to the BoE...

Government figures on Tuesday showed that the rate of consumer inflation reached its highest level in 13 months driven by high food and fuel costs. Commenting on the figures, Mervyn King, Governer of the Bank of England, commented: Inflation will probably stay above the government target of 2% for two years, hampering the economy. House prices are set to fall further, though no one could be certain how far they will decline.

“We are travelling along a bumpy road as the economy rebalances. Monetary policy cannot and should not try to prevent that adjustment. The MPC must focus on bringing inflation back to the target in the medium term. The balancing act faced by the Monetary Policy Committee (MPC) is even more challenging than it was in February”.

£50bn plan 'working'

Mr King also commented the plan allows UK banks to swap problem mortgages for some £50bn of government bonds: "So far, it's working, but it will take a long time before its effects feed through.

“We hopes the scheme will encourage banks to lend to each other again and also to homeowners, easing the credit crunch that has started to affect consumers and their spending patterns.

"It will take time to rebuild that sense of confidence in the banking system and during that period credit conditions will be more difficult than they would normally. I think the events of the last six to nine months are not ones that people will forget in a hurry."