Another two years of economic struggle and depressed average incomes are in store for the British, warned the Bank of England.
In its inflation forecast released yesterday, the Bank of England projected low GDP growth, with inflation surpassing its 2 percent target through 2015. Inflation is expected to peak at 3.2 percent during the current year, as reported by The Guardian.
Consumer prices index inflation has been at 2.7 per cent since October but Wednesday’s data revealed households have suffered faster rises in essential items such as energy, food and rent. The British economy will therefore remain weak until the next election.
Sir Mervyn King, governor of the Bank of England, blamed the U.K.’s government for pushing inflation above 2 percent for the fourth consecutive year. King stated that the inflation was a direct result of “administrative decisions” that including steep hikes in university tuition fees and hikes into energy bills tied to green subsidies. The comments accompanied King delivery of the bank’s quarterly report on inflation.
Treasury sources said it was unfair of the governor to blame the government when it had made every effort to limit price rises in key areas, including freezing fuel duty and council tax.
The pound, the British currency, dropped a cent to $1.55 on the news. Despite a higher construction output and other signs of life in the economy, the central bank intends to continue to flood the economy with cash through quantitative easing, buying up government debt.
"We must recognize there are limits to what can be achieved via general monetary stimulus – in any form – on its own," said King.
So far, the bank has spent £375 billion (approximately $582 billion) buying up government bonds. Although the Bank of England has resisted increasing this program, King’s replacement, incoming governor Mark Carney, hinted last week he may take a more aggressive stance at the bank to spark growth.
Such uncertainty and behavior is frequently considered rash by investors, who seek the stability and security of commodities including the precious metals gold, silver and platinum.
Britain’s business leaders have pushed for more spending within the country, but not on quantitative easing. Instead they argue for spending on infrastructure such as repair and maintenance of the road system. They anticipate that this type of spending will spur job growth.
The Confederation of British Industry, which represents thousands of the UK's biggest private sector employers, warned that without a push from the Treasury the economy would continue to crawl out of recession.
"Attempting to bring inflation back to target sooner [than 2015] would risk derailing the recovery and undershooting the target in the medium term," said King.