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King to take “whatever actions are necessary” to keep to inflation target

The Bank of England governor Mervyn King says he is ready to take “whatever actions are necessary” to keep the outlook for inflation at 2 per cent.

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.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. *wonders what meat has to do with anything – spell check fail!*

  2. They could start by raising the base rate. I appreciate the 2yr ‘monetary transmission mechanism’, but rates have been coming down and bottomed out for a very long period.

    I’m a saver a seeing sizeable negative real returns. Also employed, and over the last year and a half heard nothing but “lucky to be in a job” mantra as my employer withdrew bonuses (despite 20% increase in profits 2yrs running etc…), and gave real pay cuts – though again the CEO awarded himself with huge raise & bonus.

  3. Since when has a £200bn fiscal stimulus allied to unprecedentedly cheap money ever been likely to lead to lower inflation in the medium term??

  4. What King is saying is that he sees strong deflationary pressures, which low interest rates and QE are countering. He thinks inflation will fall rapidly over the next few months.

    Personally, I’m sceptical. There is indeed a lot of spare capacity in the economy, but this can’t be put to work to push prices down. Most of the goods we consume are imported, and all government controlled prices are going to continue to rise as spending cuts begin to have an effect.

    So I see a risk of stagflation: negligible GDP growth and simultaneous inflation.

  5. I think the way Mr King have bounced back after his 4 – 2 defeat against Co stompy in the PDC championships is a triumph to us all. If he is strong enough to fight inflation after this then he gets my vote and all the Duck moats his private residence can handle

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