Bloomberg News

King Seen Writing U.K. Inflation Letter as 3% Overshoot Persists

May 18, 2012

Bank of England Governor Mervyn King will probably have to write a 10th consecutive letter to Chancellor of the Exchequer George Osborne to explain why inflation remained above the government’s upper limit in April, according to a survey of economists.

U.K. consumer prices rose an annual 3.1 percent after a 3.5 percent gain in March, according to the median forecast of 30 economists surveyed by Bloomberg. That would be the slowest in 19 months. King is obliged to write a quarterly open letter to Osborne while inflation stays above the 3 percent ceiling, explaining the deviation and what he will do about it.

While consumer-price gains have slowed from a peak of 5.2 percent in September, they have been above the 2 percent target for more than two years and the central bank said earlier this week that may continue for another year. King has previously blamed temporary factors for the overshoot and said on May 16 that the impact of tax rises and increases in commodity costs this year meant price gains have slowed less than expected.

“Mervyn has been writing a version of the same letter every quarter since February 2010,” said Howard Archer, an economist at IHS Global Insight in London. While “underlying inflationary pressures will gradually ease,” the fact “remains that consumer price inflation is proving a lot stickier than had been expected and hoped for.”

Bank of England policy makers voted to halt expanding their bond-purchase program at 325 billion pounds ($414 billion) last week after some officials stepped up their rhetoric on inflation.

Deputy Governor Paul Tucker said April 18 that the “uncomfortably above target” rate could hold above 3 percent into the second half of the year. Minutes of the May 9-10 policy meeting will be published on May 23.

The Office for National Statistics in London will publish April’s inflation data at 9:30 a.m. on May 22, while any letter from King, as well as Osborne’s response, will be released an hour later by the central bank.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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