Inflation pledge by Bank governor

Bank of England Governor Mervyn King vowed today to return soaring inflation to the Government's 2 per cent target.

Mr King told MPs at a Treasury Select Committee hearing that a slowdown in the economy would help reduce inflation.

But he warned that the Monetary Policy Committee faced a "difficult balancing act" in ensuring the economy did not slow so much that it pulled inflation below target.

He repeated predictions that inflation is set to hit more than 4 per cent this year as petrol, energy and food prices continue to rise.

Rocketing oil prices have now seen the cost of crude effectively reach the same levels as those seen in the 1970s, added Mr King.

His appearance before the cross-party group of MPs comes a week after he wrote to the Chancellor to explain why inflation hit 3.3% in May - the highest in the 11 years of the Bank's independence.

But Mr King today stressed that the inflation spike was temporary.

He said: "The immediate cause of the rise in inflation we are seeing now is a change in the prices of food and energy relative to other prices.

"This will push up the overall level of prices but it cannot, by itself, produce sustained inflation unless we allow other prices and wages to rise at a faster rate.

"The MPC is focussed on preventing that. So although inflation is rising now, we will ensure that it falls back to the 2 per cent target."

Last week, Mr King cautioned that the UK faced its most challenging circumstances in 20 years as household budgets were squeezed by rising prices - while the credit crunch and dearer mortgages hit the housing market.

The bosses of the UK's six biggest energy firms piled on the gloom this week with warnings of price hikes this winter, while the British Bankers' Association said the number of loans approved for people buying a home fell to a record low in May - 56 per cent below a year earlier.