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MPC can do little to curb inflation in current climate, says King

Bank of England governor Mervyn King has admitted the Monetary Policy Committee can do little to change the path of inflation in the short term.

In his foreword to the Bank’s annual report published today King revealed he would be likely to have to write to the chancellor every three months to explain why inflation is above the Government’s target of 2 per cent.

King believes inflation is likely to remain above 3 per cent until well into next year.

He said: “The MPC 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.”

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