Mervyn King concerned about inflation
Mervyn King, the governor of the Bank of England, has today suggested that the UK economy could feel the impact of higher than expected inflation in the short to medium term. This comes despite the fact that the Bank of England has been adamant that inflation would fall below its 2% target range in the short to medium term, despite the fact that the consumer price index has remained above 3% throughout 2010. So what can we expect in the future?
This is the first time that Mervyn King has actually admitted in public that inflation may not fall back in the short to medium term. While the only real defence against runaway inflation is increasing UK base rates, Mervyn King also conceded that this was unlikely in the short to medium-term due to the fragile nature of the UK economic recovery. So in many ways inflation has been let loose in the short-term as the authorities and the UK government continue to focus upon maintaining economic growth in these difficult times.
While Mervyn King did not directly confirm that he believes inflation will remain above 3%, neither did he express a confident view that it would fall in the short-term.
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