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| Inflation to stay above target, says Bank of England | |
| (about 2 hours later) | |
| The UK inflation rate will remain stubbornly high for longer than previously thought, the governor of the Bank of England has said. | |
| Sir Mervyn King now expects inflation, currently 2.7%, to rise to at least 3% by the summer and to remain above the Bank's 2% target for two years. | |
| In November he had said that inflation would fall back towards its target in the second half of this year. | |
| But the governor also said that "a recovery is in sight". | |
| Sir Mervyn King, presenting the Bank's latest href="http://www.bankofengland.co.uk/publications/Documents/inflationreport/2013/ir13feb.pdf" >Quarterly Inflation Report, 20 years after it issued its first one, said the economy had "cause for optimism". | |
| 'Own goal' | |
| Sir Mervyn said that factors outside of the Bank's control - increases in university tuition fees and utility bills - had added to inflation recently. | Sir Mervyn said that factors outside of the Bank's control - increases in university tuition fees and utility bills - had added to inflation recently. |
| "If you like, it is a bit of a self-inflicted goal in terms of the damage done to real take-home pay, perhaps another way of trying to implement fiscal consolidation through moving up the price level," he said. | "If you like, it is a bit of a self-inflicted goal in terms of the damage done to real take-home pay, perhaps another way of trying to implement fiscal consolidation through moving up the price level," he said. |
| "This is not the result of easy monetary policy and nor does it reflect what's going on in the economy." | "This is not the result of easy monetary policy and nor does it reflect what's going on in the economy." |
| He drew parallels between now and when the Bank's first inflation report was presented in 1993. | He drew parallels between now and when the Bank's first inflation report was presented in 1993. |
| "[In February 1993] unemployment had just reached its peak. Although we didn't know it at the time a recovery was on its way. | "[In February 1993] unemployment had just reached its peak. Although we didn't know it at the time a recovery was on its way. |
| "[Today] there is cause for optimism. Today too a recovery is in sight." | "[Today] there is cause for optimism. Today too a recovery is in sight." |
| 'Encouraging' picture | 'Encouraging' picture |
| The economy shrank by 0.3% in the last three months of 2012, fuelling fears that the UK could re-enter recession, defined as two consecutive quarters of contraction. | The economy shrank by 0.3% in the last three months of 2012, fuelling fears that the UK could re-enter recession, defined as two consecutive quarters of contraction. |
| Although economic output has been broadly flat for the past two years, Sir Mervyn said that masked "a more encouraging underlying picture". | Although economic output has been broadly flat for the past two years, Sir Mervyn said that masked "a more encouraging underlying picture". |
| Manufacturing and services - which make up the bulk of the economy - had grown during 2012, seeing a similar performance to that in the US and considerably stronger than in Japan and the eurozone, he said. | Manufacturing and services - which make up the bulk of the economy - had grown during 2012, seeing a similar performance to that in the US and considerably stronger than in Japan and the eurozone, he said. |
| The weakness in overall output reflected falls in construction, which is "unlikely to be repeated in 2013". | The weakness in overall output reflected falls in construction, which is "unlikely to be repeated in 2013". |
| "Growth is likely to be weak in the near term but further out a continued easing in domestic credit conditions, supported by the Bank's asset purchase programme and the Funding for Lending Scheme, together with the stronger global backdrop, underpin a slow but steady recovery in output," the governor said. | "Growth is likely to be weak in the near term but further out a continued easing in domestic credit conditions, supported by the Bank's asset purchase programme and the Funding for Lending Scheme, together with the stronger global backdrop, underpin a slow but steady recovery in output," the governor said. |
| Sir Mervyn was delivering his penultimate Inflation Report. His last Report will be in May, before he is replaced by Mark Carney as governor in the summer. | Sir Mervyn was delivering his penultimate Inflation Report. His last Report will be in May, before he is replaced by Mark Carney as governor in the summer. |
| Living standards | |
| The governor's message that the central bank was resigned to above-target inflation sent the pound falling on the currency markets. | |
| It fell 1% against the euro to 1.1521 euros and was 0.6% lower against the dollar at $1.5573. | |
| The prospects for inflation will be a blow for many facing pay freezes or below-inflation wage rises. | |
| The Office for National Statistics said on Wednesday that UK workers were earning no more than they were 10 years ago, while a report from the Resolution Foundation think tank warned that it could be another 10 years before living standards return to the levels they were at before the recession. | |
| In Prime Minister's Questions, Labour leader Ed Miliband asked David Cameron if living standards would be higher in 2015 than they were in 2010. | |
| The prime minister said that people on the minimum wage would be better off due to cuts in income tax bills, and pointed out that inflation is lower now than it was in 2010. |