A new rise in inflation was not a worry to Sir Mervyn King as he talked about his fears regarding the implications of the recent state of the financial markets and the debt crisis in the Eurozone on an already jittery UK economy.
Inflation will rise
The Governor of the Bank of England, King, believes that inflation will rise to approximately 5% in the months before 2012.
King has said in a letter to the Chancellor George Osborne regarding the uncertainty in the financial markets: “There is a risk that this could lead to severe stress and dislocation in financial markets and, were this to crystallise, it would have a significant impact on the UK economy.”
Figures from the Office for National Statistics’ (ONS) highlight that inflation measure by CPI (consumer prices index) increased to 4.4% from 4.2%. Higher bank charges have played their part in rising the inflation.
King has had to write a series of quarterly explanatory letters to Chancellor Osborne and his predecessor Alistair Darling due to the fact that CPI inflation has now been more than a percentage point above the 2% target since January 2010.
Rise in rail fare
Higher costs of imports, VAT increase to 20% and higher energy costs all contributed to steep rise in living costs, if these changes were to be wiped out then inflation would return back to a normal level.
Another sore point is the reality that rail passengers in Britain will be staring at inflation-busting fare increases of 8% on average. This has come after the Retail Prices Index revealed an increase of 5%. The formula that government uses means that train companies can increase the fares by 3 percentage points.