The Office of National Statistics today revealed that the Consumer Price Index rose to 3.5 per cent in January, forcing King to write to Chancellor Alistair Darling to explain why it is over the 2 per cent target.
King (pictured) told Darling that the VAT increase to 17.5 per cent in December, coupled with oil price hikes and falling Sterling has meant that inflation has spiked in the short term but he says the affects of the £200bn fiscal stimulus alongside 11 months of 0.5 per cent base rate will mean inflation will fall in the medium term.
He wrote: “The Committee has taken unprecedented action to offset downside pressures, ensuring that the medium-term outlook for inflation remains consistent with the 2 per cent target. It is important to emphasise that the effects of the money-financed asset purchases will persist. That, together with the low level of bank rate, will continue to provide a substantial boost to nominal spending for some time to come.
“The Committee is committed to taking whatever actions are necessary to ensure that the outlook is for inflation to remain in line with the 2 per cent target. It will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.”