Annual Inflation will remain above the targeted 2 percent “until well into 2012” – said Bank of England’s Governor Mervyn King.
Mr. King, while addressing the Treasury Select Committee yesterday said that he expected inflation to drop by summer once higher oil prices and taxes feed through to consumers. However, headline inflation will not recede until next year compared to last years numbers, he warned.
“Financial markets clearly do not believe that the rate of increase of prices that we have seen will persist, even if the headline inflation levels will persist”, said Mr. King.
The Monetary Policy Committee (MPC) believes that inflation rate will shoot to 7 percent on a seasonally adjusted annualized basis, before coming down to 2 percent level by September 2011.
Mr. King warned that deteriorating political situation in the Middle East may drive energy prices up north further, thus aggravating inflation in the UK.
“An awful lot will hinge on how far this rise in oil prices persists, whether the situation in the Middle East becomes clarified and the price of crude falls back again”, said Mr. King.