Britons should not expect a cut in UK interest rates for at least two years, the Bank of England indicated yesterday as it warned that inflation would rise far above previous forecasts and persist at levels well above the government’s target until early 2010. Financial Times, The Times, Daily Telegraph, The Independent
Mervyn King, the Bank governor, said the consequence of price increases would be 'a squeeze on real take-home pay, which will slow consumer spending and output growth, perhaps sharply'.
Saying that 'the nice decade is behind us', he added that it was 'quite possible we may get the odd quarter or two of negative growth'. But he said that a recession was not the Bank’s central forecast.
Alistair Darling, chancellor, said his unfunded £2.7bn tax cut would 'support the economy when it needs to be supported'.
However, King said the effects of the emergency Budget would be 'modest'.
Presenting the UK quarterly forecasts, the Bank said inflation was likely to rise above 3% over the next few months and remain more than one percentage point above its 2% target. This, the governor said, would force him to write a 'number of open letters to the chancellor over the next year'.