Warning that inflation will rise above 3% from Bank of England

The governor of the Bank of England, Mervyn King, has predicted that inflation will rise above 3% in the next few weeks. Although this is a major worry he has also predicted that this will be short lived. This increase in inflation is due to higher VAT and the rises in petrol prices.

If his predictions are true and inflation does rise above 3% he will be expected to write a letter explaining this to the chancellor. “The UK economy has continued to bump along the bottom,” Mr King said.

He also stated that the UK will not see economic growth like they had before the economic crisis for “a considerable period”. Even with £200bn pumped into the economy by buying assets with newly created money the economy is still suffering. This raises questions on the effectiveness of quantitative easing (QE). Mr King has said that this QE has ‘helped economic recovery’ but how long will the UK have to wait to see the benefits of this?

D.Brown, chief European economist at Bear Stearns International said “The message the bank would like to get across to the market is that there is only room for moderate easing ahead, but the fundamentals say otherwise.”

This indicates that the UK has a bit more falling to do before the economy will rise again the question on most peoples minds is how far will the UK fall before it gets back up?

Source BBC & New York Times