Prices are set to rise sharply in
coming months and inflation could even top 6 per cent in the short-term, the
Bank of England has warned.
However, Governor Mervyn King
stressed the Bank had an “iron clad” commitment to keeping any rise
in the cost of living at 2 per cent.
The predictions came in the Bank’s
latest inflation report, eagerly awaited by the City for clues as to when
interest rates may rise.
Mr King confirmed the Bank expected
inflation to remain high and above the level previously predicted this year,
before dropping in 2012.
“That mainly reflects further
sharp increases in commodity and import prices in the past three months,”
said Mr King
Prices are likely to rise sharply
in the first half of this year, but unless food, energy and other commodity
prices continue to rise at the same rate, CPI inflation will then fall
However, he added the extent to
which inflation would fall back was uncertain.
The Governor also dismissed
suggestions the Bank was “laying the ground for a rate rise” in its
“I think some people are
getting ahead of themselves,” he said.
“We never pre-announce a
decision on interest rates – we haven’t taken one yet. We take those decisions
month by month.”
Meanwhile, the Bank of England
downgraded its UK economic growth forecast, but offered reassurance that a
double-dip recession was unlikely.
“The rebalancing of the
economy, so necessary to ensure the recovery is sustainable, is underway,”
Mr King said.
The report followed recently
released inflation figures, which showed a further acceleration in living costs
to 4 per cent in January.