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Mervyn King warns UK households are in for a tough ride

Bank of England governor Mervyn King has warned UK households that their patience will be “sorely tried” over the next couple of years as the fiscal stimulus is withdrawn and there is little growth in pay.

Speaking at the University of Exeter yesterday, King (pictured) also indicated that the Monetary Policy Committee had yet to reach a conclusion on whether there would be further injections of capital under the quantitative easing programme in 2010.

Comparing the QE stimulus to a race horse that was named after it, King said: “Rather like the MPC, the owners of Quantitativeasing, winner of all three of his races in 2009, have yet to decide how many outings he will have in 2010.”

King played down yesterday’s news of the shock rise in consumer price index inflation which was up 1 per cent between November and December 2009, from 1.9 per cent to 2.9 per cent.

He said: “It is clear that inflation is likely to pick up markedly in the first half of this year, a message reinforced by this morning’s news that CPI inflation reached 2.9 per cent in December.

“The continuing pass-through of the earlier significant depreciation of sterling, while part of the necessary rebalancing of our economy, is offsetting to some extent the downward pressure on inflation from the large amount of spare capacity. And the rise in VAT back to 17.5 per cent means that CPI inflation is likely to rise to over 3 per cent for a while, or even higher for even longer were energy prices or indirect taxes to increase further.”

But he added: “Provided monetary growth remains well under control – and remember that at present it is undesirably low – inflation should return to target in the medium term.”

King said: “The patience of UK households is likely to be sorely tried over the next couple of years. There is little scope for growth in real take-home pay, which may remain weak even as
output recovers.”


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

  1. You say that inflation increased by ‘ a record 1 per cent..’
    That’s 1 in 100. Surely some mistake?

  2. On top of all this S.E.R.P.S. a state pension is to be frozen,with no link to inflation!!
    A kicking for all prudent pensioners who have saved for their retirement,not receiving “pension credits” in addition any “nest egg” saved attracting punitive interest payments.
    I receive approx £10,000 per annum on which I pay tax,so Im hardly rolling in it !!

  3. At last someone has admitted that the long-term intent is now to reduce our standard of living to make us competitive in the export markets again. As usual no one in this cowardly government is prepared to announce this so Mervyn King drew the short straw

  4. But you’ll be okay if you work at Canary Wharf.

  5. No pain in his pay packet. If he had have been doing job a bit better instead of making smart comments and scare mongering all innocent victims of bad goverment, BOE and FSA management then things would be a bit better. Cut all their paypackets i say.

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