Bank of England governor Mervyn King believes that the inflation rate could remain above the 2 per cent target “until well into 2012”.
Speaking at yesterday’s Treasury select committee, King said that he expected inflationary pressures in the UK to recede by the summer once higher taxes and oil prices feed through to consumers, but warned that year-on year comparison meant the headline inflation rate would not fall until next year.
King said: “Financial markets clearly do not believe that the rate of increase of prices that we have seen will persist, even if the headline inflation levels will persist.”
The Monetary Policy Committee expects inflation to rise at a seasonally adjusted annualised rate of almost 7 per cent this quarter, however it expects to drop to roughly 2 per cent by September.
King also warned the inflationary outlook could worsen if concerns in the Middle East led to a further rise in the cost of oil.
He said: “An awful lot will hinge on how far this rise in oil prices persists, whether the situation in the Middle East becomes clarified and the price of crude falls back again.”