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| Version 2 | Version 3 |
|---|---|
| King confident on inflation fall | King confident on inflation fall |
| (about 2 hours later) | |
| The governor of the Bank of England, Mervyn King, has told MPs he is confident that inflation will fall back to the government's 2% target. | The governor of the Bank of England, Mervyn King, has told MPs he is confident that inflation will fall back to the government's 2% target. |
| However, he warned that before price growth slowed, the rising cost of food and energy prices were likely to push inflation above 4% this year. | |
| Mr King said an economic slowdown was needed to ensure inflation returned to the goal in the next year or so. | |
| He added that the Bank would "ensure" that inflation slowed to target levels. | |
| Mr King was appearing before the Treasury Select Committee a week after he wrote to the chancellor, explaining why inflation had hit 3.3%. | |
| Last week, he said the UK faced its "most difficult economic challenge for two decades". | Last week, he said the UK faced its "most difficult economic challenge for two decades". |
| Higher interest rates would be needed as a result, Mr King added, but he did not commit himself to any particular level. | Higher interest rates would be needed as a result, Mr King added, but he did not commit himself to any particular level. |
| House price speculation | House price speculation |
| Oil prices - which came close to $140 a barrel earlier this month - were now higher in than the 1970s in real terms, he told MPs, while the depreciation of sterling had made imports more expensive. | Oil prices - which came close to $140 a barrel earlier this month - were now higher in than the 1970s in real terms, he told MPs, while the depreciation of sterling had made imports more expensive. |
| "This will pass through to household bills and consumer prices," he said. | "This will pass through to household bills and consumer prices," he said. |
| The removal of the erroneous belief that house prices will only ever grow in real terms is not a bad thing Kate Barker, MPC member | The removal of the erroneous belief that house prices will only ever grow in real terms is not a bad thing Kate Barker, MPC member |
| The comments followed last month's Mansion House speech where he said that growth and house prices were likely to fall and that real take-home pay would stagnate, making life difficult for some families. | |
| The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) rose by 3.3% in May, up from 3% in April. | The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) rose by 3.3% in May, up from 3% in April. |
| This is the fastest rate since the CPI measure began in 1997, the ONS said. | This is the fastest rate since the CPI measure began in 1997, the ONS said. |
| The wider Retail Prices Index measure of inflation rose to 4.3% from 4.2% the previous month. | The wider Retail Prices Index measure of inflation rose to 4.3% from 4.2% the previous month. |
| 'Pull back' | 'Pull back' |
| On the housing market, Mr King said that the situation was very different from the troubles of the early 1990s - with levels of people in arrears and the number of repossessions much lower today. | On the housing market, Mr King said that the situation was very different from the troubles of the early 1990s - with levels of people in arrears and the number of repossessions much lower today. |
| But he forecast a "period of extremely weak activity" in the housing market as people took stock of what was happening to prices. | But he forecast a "period of extremely weak activity" in the housing market as people took stock of what was happening to prices. |
| "None of us can really know where house prices will go," Mr King said. | "None of us can really know where house prices will go," Mr King said. |
| "We are going through a period of adjustment now, in which, because any prospective purchaser can't really judge the likely level of house prices and where they'll settle, it would be a very natural response to pull back and to wait until the market's reached a new equilibrium before coming in." | "We are going through a period of adjustment now, in which, because any prospective purchaser can't really judge the likely level of house prices and where they'll settle, it would be a very natural response to pull back and to wait until the market's reached a new equilibrium before coming in." |
| What would happen was "difficult to predict", he added, though said the situation had to be monitored. | What would happen was "difficult to predict", he added, though said the situation had to be monitored. |
| Bad thing? | |
| Another member of the Bank's Monetary Policy Committee, Kate Barker, told MPs that while a fall in house prices was not, in the short term, good news, it had served a useful purpose. | Another member of the Bank's Monetary Policy Committee, Kate Barker, told MPs that while a fall in house prices was not, in the short term, good news, it had served a useful purpose. |
| "There was an element of speculation in the market, especially in buy-to-let," Ms Barker said. | "There was an element of speculation in the market, especially in buy-to-let," Ms Barker said. |
| "So the removal of the erroneous belief that house prices will only ever grow in real terms is not a bad thing." | "So the removal of the erroneous belief that house prices will only ever grow in real terms is not a bad thing." |
| She added that the market correction was different from the 1990s, when there had been "a much faster slowdown in the economy as a whole and a much greater rise in unemployment". | She added that the market correction was different from the 1990s, when there had been "a much faster slowdown in the economy as a whole and a much greater rise in unemployment". |
| But she said that there were worrying signs in the construction sector, which had seen a fall this year "that it took almost six years to achieve in the 1990s". | But she said that there were worrying signs in the construction sector, which had seen a fall this year "that it took almost six years to achieve in the 1990s". |