The Bank of England appears to have conceded defeat in the ongoing battle with inflation. Responding to new figures from the Office for National Statistics, which revealed the UK inflation rose to 3.8% in June (from 3.3% in May), Governor Mervyn King basically admitted that the Bank of England was powerless against the rising tide.
He explained: "The Monetary Policy Committee can have little impact on the path of inflation in the short term. It has not attempted to prevent inflation moving away from the target following the sharp rises in commodity prices.
"To do so would have required a large increase in interest rates, with such a severe impact on output and employment that it would have risked inflation falling well below target further out." He continued: "We are now faced for the second time in less than two years with the prospect of a sharp, but temporary, rise in inflation, this time mainly from the impact of energy and food price rises.
"In fact, it is likely that inflation will remain above three per cent until well into next year." The Bank of England has already said it expected price growth to continue this year, and maybe top 4% before December.
The worry for many observers is that interest rates may have to rise at a time when economic growth is slowing and consumer demand is waning.
SOURCE: The Move Channel |
