Wednesday, August 13, 2008
Downbeat Bank insists inflation will return to target
Posted by David Smith at 12:15 PM
Category: Thoughts and responses

The Bank of England, in its quarterly inflation report, predicted a difficult year ahead, with inflation rising to a peak of 5% or more and output "broadly flat" over the next 12 months. In other words, stagflation-lite. It stopped short of calling a recession and Mervyn King insisted the medium-term outlook would be much brighter but this was a pretty gloomy report.

Though the report said the inflation risks were on the upside and the growth risks on the downside, it has been interpreted as dovish on rates and sterling has dropped in response. Judge for yourself by accessing the report here, where the webcast of the press conference and the Bank's opening statement can also be viewed.

The report's publication followed figures showing that employment growth has slowed to a crawl and that unemployment is up on both the claimant count and Labour Force Survey measures. The good news was that average earnings growth slipped back to 3.4% and remains very subdued. The release is here.