BoE governor defends low interest rates

The Governor of the Bank of England has admitted that inflation could rise to 5% during 2011, but has reaffirmed the bank’s commitment to keeping interest rates low.

The Consumer Prices Index measure of inflation stood at 3.7% at the end of last year and with the standard rate of VAT rising to 20% this month, plus recent increases in world commodity and energy prices, the Governor expects inflation to rise to between 4% and 5% over the next few months, before falling back next year.

Speaking in Newcastle last night, Mervyn King conceded that had the Bank’s Montary Policy Committee (MPC) raised the base rate significantly before now, inflation may well have started to fall back in 2011.

However, “the recovery would have been slower, unemployment higher and average earnings rising even more slowly than now”, Mr King stated

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