Bank says inflation to stay high

Some prices may be falling but inflation overall is expected to remain high

The Bank of England inflation report says inflation will stay high next year, but the outlook is unclear.

Its Quarterly Inflation Bulletin said there was a risk consumer spending would slow, because of rising taxes and higher debt.

The report stressed the outlook was highly uncertain.

As such, it gave no clear indication over the direction of interest rates, nor whether there would be more asset buying – or Quantitative Easing (QE).

The report, did though, leave the door open for more QE.

The Bank’s Governor, Mervyn King, said the risks to the economy were “on the downside” and growth was likely to slow from its current pace.

As well as a tightening on consumers’ spending power, thanks to higher debt and taxes, the governor also pointed to a likely fall in construction activity, given the government’s cuts in public spending.

The most recent gross domestic product figures (GDP) showed growth of 0.8% in the third quarter of this year.

But the Bank’s report also noted there was a wider-than-usual range of views among Monetary Policy Committee (MPC) members.

Recent meetings have seen growing disagreement between the Bank’s MPC members with a three-way split in the vote at the end of the MPC’s last meeting.

Seven of its members voted for no change to interest rates and no additional stimulus spending, one person wanted to see rates rise, while another member voted to see QE restart.

Mervyn King said this meant the MPC was operating as it should be, and compared it to the team spirit of England’s cricketers: “Like the English batsmen preparing to defend the Ashes, watching carefully, perfectly balanced in the crease, ready to play forward or back according to the length of the incoming delivery… in order to keep inflation on track to meet the 2% target in the medium term.”

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