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BoE: UK faces 'considerable uncertainties'
The cost of living in the UK is soaring to its highest level for 16 years, according to latest figures...
The governor of the Bank of England has warned that rising food and energy prices could push UK consumer inflation above 4% this year. The warning came in response to figures from the Office for National Statistics (ONS) and the Consumer Prices Index (CPI), which highlighted a rise of 0.3% in May, up from 3% in April - the fastest rate since the CPI measure began in 1997.
A spokesperson for the ONS explained: “The wider Retail Prices Index measure of inflation rose to 4.3% from 4.2% the previous month, and the biggest contributor to consumer inflation was the rising price of food and non-alcoholic drinks. This was mainly due to the increasing cost of meat products, particularly bacon, and vegetables.
“Increasing household energy bills were also a significant factor, along with the rising cost of books, stationery and foreign holidays. However, this rise in the cost of leisure and recreation was offset by a fall in the price of DVDs”
Considerable uncertainties
If inflation rises more than one percentage point above the government's 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices.
In his letter to the chancellor, BoE Governor Mervyn King blamed sharp rises in the prices of food and energy for the increase in the rate of inflation. Mr King wrote: "As things stand, inflation is likely to rise sharply in the second half of the year, to above 4%. I must stress however, that there are considerable uncertainties, in both directions, around this, and any such projection is particularly sensitive to changes in domestic gas and electricity prices”.
He added: “The rate of inflation should peak towards the end of this year, as long as there are no unexpected increases in oil and commodity prices. Should the UK avoid severe external shocks, then the rate of inflation will begin to fall back towards the 2% target next year”.
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