Bank governor: living standards falling

Posted on 14 February 2008 by Charcol

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The governor of the Bank of England has warned that standards of living are falling in the UK as economic conditions bite.

Commenting on the Bank's latest Inflation Report, governor Mervyn King said: "The higher level of energy and food prices is a genuine reduction in our standard of living relative to where it would otherwise have been."

Since the last report in November, inflation has been markedly increased by higher food and fuel prices and the cost of imports.

Mr King said that CPI inflation โ€“ currently above the government-set 2.0% target at 2.2% โ€“ was likely to jump to "around the level [3.0%] at which I would be required to write an open letter to the Chancellor".

The prediction appears to dampen borrowers' hopes for a big cut in interest rates. However, some analysts seized on the report's statement that inflation would fall below target if the Bank rate remained at 5.25%.

Quoted in the Guardian, David Page of Investec said: "To our minds, the report and ensuing press conference suggested a further reduction in bank rate, but not by as much as markets had hoped. We expect the Bank rate to reach 4.75% in August."

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