Inflation rate remains above target
18th August 2010
The Bank of England Governor has written to the Chancellor informing him that inflation remains well above its target of 2%.
In an open letter to George Osborne, Mervyn King said it would be difficult to say how far and how quickly inflation will fall.
The recent strength of inflation had "surprised" rate-setters, he said.
It comes as inflation slid to 3.1% from 3.2% last month - well above the Bank's 2% target.
Rising food costs offset the impact of falling petrol prices over the month on the Consumer Prices Index (CPI), which the Bank expects to stay above target until the end of next year.
The Governor said: "How fast and how far inflation will fall are both difficult to judge, with substantial risks in both directions."
The Bank, which has faced criticism over its forecasting in recent weeks, lowered growth predictions in its quarterly report last week and said inflation would be higher than first thought.
The Governor said the huge economic slack created by a record recession was being masked by January's VAT hike, high oil prices and sterling's weakness pushing up import prices. The looming VAT hike next year will add to inflation pressure.
Copyright © Press Association 2010
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