BoE Governor reluctant to raise base rate

by Gill Montia

Story link: BoE Governor reluctant to raise base rate

The Governor of the Bank of England, Mervyn King, has indicated that he is reluctant to raise the base rate in an effort to maintain the Government’s inflation target of 2%.

Addressing the House of Commons Treasury Committee, Mr King spoke about the balancing act of addressing inflationary pressures while remaining mindful of the dangers of an economic slowdown.

He said policymakers need to avoid an economic slowdown that is so pronounced it could bring inflation to below even the Government’s 2% target.

The Governor expects inflation to rise above 4% this year, after which it should be brought under control.

Turning to last months rise in inflation, to 3.3%, Mr King blamed the increased cost of oil, food and energy, adding that a fall in the value of sterling had also made imported goods more expensive.

Monetary Policy Committee member, Kate Barker, also attended the meeting and pointed out that in the coming months energy prices are likely to determine the course of inflation in the UK.

She added that changes in pricing behaviour and in wage growth will indicate to what extent inflation will rise in the medium-term.