Mervyn King downgrades growth forecast
Sir Mervyn told a news conference that inflation would remain high until the second half of 2013 when it would fall towards its 2% target: “We face the rather unappealing combination of a subdued recovery, with inflation remaining above target for a while.”
Because of an expected “zigzag” recovery, he said that the Bank had not ruled out further asset purchases to stimulate growth.
Jason Conibear, trading director of the forex specialists Cambridge Mercantile, said: “With a deft feint worthy of a politician, the Bank of England has dodged one tough question by answering another.
“A day after the CPI shot up to an embarrassingly high 2.7%, the Bank’s quarterly inflation report was decidedly coy with its short-term inflation predictions.
“Rather it chose to focus on the medium term, with the meek forecast that inflation would fall in the second half of next year.
“For which read that in the short term at least, its inflation target will be tacitly ignored.
“For an organisation that has inflation control as its primary mission, this is quite an admission. Not of failure, but of the fact it has bigger fish to fry.
“There is nothing guaranteed about the recovery, and stewarding growth is clearly the Bank’s greater priority.
“While the high levels of inflation will lengthen the odds of imminent QE, no one should doubt that if the Bank thinks it needs to print more money to stimulate growth, it will not hesitate do so.
“The prospect of further QE has receded only temporarily, and any boost to Sterling will be equally fleeting.”