LONDON: Bank of England said inflation is on course to meet its 2 per cent mark and in saying so the central bank indicated that interest rates are to stay on hold for months to come.
The bank, which released its quarterly Inflation Report, did not, however, categorically say whether the rates are going to be revised or not. And governor Mervyn King told a news conference that the bank does not anticipate future decisions. "There is, as I said, a great deal of uncertainty at the moment."
The bank said though the inflation has exceeded its target for four successive months, it would soon dip below 2 per cent before rising again to be at that level in two years. It has lowered its growth forecast for the coming year, but felt there will be momentum to reach a 3 per cent level at the end of 2007.
The core measure of CPI inflation, which excludes energy, food, alcoholic drinks and tobacco items, rose 0.1 per cent in October compared with September while the annual rate dropped from 1.7 to 1.6 per cent.
The Office for National Statistics cited slower increase in prices of financial service as one of the main reasons for the fall in the rate of inflation. Housing and fuel prices, too contributed to the decline. While, better supply of vegetables reduced food inflation, household gas and electricity costs went up, causing an upward pressure.
Some economists, felt the bank could still reduce the rates in view of weak growth.
King had countered such expectations saying the worries about growth are being overdone. The 0.4 per cent GDP expansion in the third quarter is "not bad at all", he had said.
Consumer spending overall has not been as weak as one would expect given the noises that have been heard from the high street, he said.
The bank has said recovery as seen in housing market should spur consumer spending. Strong public spending and higher exports should boost the economy.
Meanwhile, the pound fell to a two-year low against the dollar 16 November after the bank's projections on a lower inflation. Yields on 10-year government bonds too fell sharply.
The dollar was at its peak of $1.7138 against a pound, while it pushed the euro to $1.1646.
The pound has been on a downward trend ever since the bank cut the interest rate in August to 4.5 per cent. The currency has slipped on expectations of a prolonged period of unchanged U.K rates with expectations of interest rate rises in the US and the eurozone.
Posted
on : Thu, 17 Nov 2005 12:10 GMT | Banking News
By : Mark Richardson
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