"Inflation is likely to rise further in the near term and may remain above the 2% target for the next two years"
- The governor of the Bank of England Sir Mervyn King
The inflation rate in the U.K. is widely expected to remain stubbornly high for longer than previously thought, while the economy has begun to recover, albeit slowly. The governor of the Bank of England Sir Mervyn King expects the pace of consumer price increase, which currently is 2.7%, to rise to at least 3.0% by the summer and to remain above the Bank's 2% target for two years. The economy shrank by 0.3% in the last three months of 2012, fuelling fears that the U.K. could re-enter recession, defined as two consecutive quarters of contraction, while King predicts a muted economic recovery.
"Inflation is likely to rise further in the near term and may remain above the 2% target for the next two years," King said as he presented the central bank's Inflation Report in London today. "The MPC's remit is to deliver price stability in the medium term in a way that avoids undesirable volatility in output in the short run. The prospect of a further prolonged period of above-target inflation must therefore be considered alongside the weakness of the real economy. If necessary, we will do more. We must recognize, however, that there are limits to what can be achieved via general monetary stimulus -- in any form - on its own."
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