Bank set to miss inflation target just as Mark Carney becomes governor post


Mark Carney, the incoming Governor of the Bank of England, could be forced to write to the Chancellor to explain away high inflation within days of starting his new job after a jump in the cost of living last month.

The rise in the consumer prices index to 2.7 per cent – with further increases expected in June – was higher than expected in the City and puts Mr Carney in danger of an embarrassing start to his five-year tenure in Threadneedle Street. The Governor has to write a public letter to the Chancellor if inflation deviates from the 2 per cent target by more than 1 per cent in either direction.

The figures also mean the current Governor, Sir Mervyn King, who has written 14 open letters to George Osborne, Alistair Darling and Gordon Brown since 2007, will leave office at the end of this month with inflation above the target. He recently blamed "own goals" such as last year's tuition fee increases for inflating the cost of living.

The latest increase was driven largely by rising air fares, 22 per cent higher than in May last year. This was put down to the timing of Easter, which fell in April in 2012 and prompted bigger discounts the following month.

A smaller fall in petrol and diesel prices than a year earlier added to the inflationary pressure while the lingering cold weather also pushed up the cost of jackets last month, the Office for National Statistics said.

Philip Shaw, Investec's chief economist, said: "These figures raise the likelihood that June's CPI rate edges above the 3 per cent threshold, especially as petrol prices seem to have firmed again in recent weeks."

Inflation has now been above the Bank's target for 42 months in a row. Under the Budget changes to the Bank's mandate, any letter from the new Governor triggered by June inflation exceeding the target by more than 1 per cent will be published alongside the minutes of the Monetary Policy Committee's next meeting in August.

The Bank's latest May forecasts predict the cost of living will peak at 3.1 per cent in the third quarter of 2013 before falling back.

The figures also underlined the continuing squeeze on household budgets, with recent figures showing average salaries growing at just 0.9 per cent, three times lower than the cost of living.

Colin Edwards, an economist at the Centre for Economics and Business Research, said: "The elevated unemployment rate, which stands at 7.8 per cent in the latest data, means that this situation looks set to persist, weighing on consumer spending power and hampering economic recovery."

Mr Carney is expected to introduce guidance on interest rates in August, potentially boosting the recovery by offering assurances on loose monetary policy, although the higher than expected inflation means that he may struggle to persuade a majority of the nine-strong MPC to sanction more quantitative easing. Sir Mervyn has been voting without success for more stimulus since February.

Simon Hayes, the chief economist at Barclays, said: "Today's news reinforces the view that an expansion of QE under the new governor Mark Carney is far from being a foregone conclusion."

Suggested Topics
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
A scene from the video shows students mock rioting
newsSchool leaver's pic YouTube video features staging of a playground gun massacre
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
ebookA unique anthology of reporting and analysis of a crucial period of history
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star