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UK inflation woe 'set to worsen' UK inflation woe 'set to worsen'
(20 minutes later)
The UK's outlook for inflation has "deteriorated markedly" in the past few months, the Bank of England's governor, Mervyn King, has said.The UK's outlook for inflation has "deteriorated markedly" in the past few months, the Bank of England's governor, Mervyn King, has said.
Mr King's comments come after figures on Tuesday showed that the rate of consumer inflation had reached its highest level in 13 months.Mr King's comments come after figures on Tuesday showed that the rate of consumer inflation had reached its highest level in 13 months.
The main drivers of price growth have been high food and fuel costs.The main drivers of price growth have been high food and fuel costs.
Mr King also spoke of the difficult balancing act the Bank had in juggling a slowing economy and quick inflation.Mr King also spoke of the difficult balancing act the Bank had in juggling a slowing economy and quick inflation.
"The central projection is for growth to slow sharply in the near term," he said as the Bank presented its inflation report. "The balancing act faced by the Monetary Policy Committee (MPC) is even more challenging than it was in February," he said as the Bank presented its inflation report.
The slowdown in the economy would reflect "the squeeze in real incomes before recovering as credit conditions begin to ease and the depreciation of sterling begins to boost exports and reduces imports", he continued. "The MPC is facing its most difficult challenge yet. For the time being at least, the nice decade is behind us."
Mr King added that that "the balance of risks to the outlook for growth is to the downside in the medium term". Consumer squeeze
Mr King said that external factors, such as high food and fuel prices, and problems in the global financial markets and the subsequent credit crunch, were impacting the UK and would have a noticeable impact on the economy.
"The central projection is for growth to slow sharply in the near term," he said.
We are travelling along a bumpy road as the economy rebalances. Monetary policy cannot and should not try to prevent that adjustment Mervyn King,Bank of England governor
While he was expecting growth to rebound in 2009, there would be a squeeze on living standards for many people living in the UK.
"The credit cycle has turned, commodity prices are rising," he explained.
"We are travelling along a bumpy road as the economy rebalances. Monetary policy cannot and should not try to prevent that adjustment.
"The MPC must focus on bringing inflation back to the target in the medium term."
Eventually, the UK economy would absorb the problems and bounce back, help by a weaker pound and easier access to financing in the global financial markets, he said.
Mr King explained that the slowdown in the economy would reflect a squeeze in real incomes, before credit conditions began to ease and the depreciation of sterling began to boost exports and reduce imports.
However, Mr King warned that that "the balance of risks to the outlook for growth is to the downside in the medium term".