King forced to write to chancellor
Tuesday 17th June 2008, 10:58AM BST.
Bank of England (BoE) governor Mervyn King has had to write to chancellor of the exchequer Alistair Darling to explain why inflation has risen above three per cent.
Office for National Statistics (ONS) data shows the consumer prices index (CPI) hit 3.3 per cent in May, triggering the letter.
Under the rules, the BoE must inform the chancellor when inflation rises above three per cent and explain what the central bank is doing to bring it back down to the government target of two per cent.
In the letter, Mr King outlines why inflation has risen so sharply – with world food prices rises along with oil and gas – and prices will rise further.
He writes: “As things stands, inflation is likely to rise sharply in the second half of the year to above four per cent.
“I must stress, however, that there are considerable uncertainties.”
He added the there “good reasons” for seeing high inflation to be temporary peaking at the end of the year.
Mr King went on to explain to Mr Darling interest rates have not been increased to combat inflation as there is a risk of slowdown to the economy.
However, he added the future of interest rates is now uncertain.
“The path of Bank Rate that will be necessary to meet the two per cent target is uncertain,” the Bank governor wrote.
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