Inflation to get worse states Bank of England
August 27, 2008
Over recent months the nation has seen the rate of inflation spiral out of control, and in July inflation levels hit an all time high of 4.4%, which is the highest since records began. This is more than double the government’s 2% inflation target, and according to officials has been pushed up by factors such as the soaring cost of food and petrol. These inflation levels have also resulted in the Bank of England keeping the base rate on hold, and it is unlikely that there will be any further cuts in the base rate over the course of this year.
To make matters worse the governor of the Bank of England, Mervyn King, has made a speech recently warning that inflation levels are set to get worse, and could reach 5% or even head towards 6% over the coming twelve months. In addition to this he warned that the economy was set to remain flat, and he did not rule out the possibility of recession, which is something that many industry officials are now speculating about.
In his speech King said: ‘The adjustment of the UK economy to higher commodity prices and a more realistic pricing of credit will be painful. The next year will be a difficult one with inflation high and output broadly flat…I think with broadly flat output, it’s bound to be the case that there is a possibility of a quarter or two of negative growth.’
He added: ‘There is a feeling of chill in the economic air. The British economy is going through a difficult and painful adjustment to higher energy and commodity prices, and in banking, credit and housing markets.’
He concluded his speech by stating that inflation would fall back to target within the next two years, adding: ‘We will come through this. We will return, if not to the ‘nice’ decade, then at least to one that is not so bad.’
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