King plays down link between falling oil prices and inflation
The Governor of the Bank of England played down hopes yesterday that the recent fall in oil prices would translate into a permanent fall in inflation.
Mervyn King said the Monetary Policy Committee was keeping a "close eye" on wage and cost pressures in the wake of the sharp drop in energy prices.
He said that while the 25 per cent fall in oil prices would help push down inflation in the short term, it might not "persist for long". "A change in oil prices does not in itself tell us where overall inflation is headed," he said.
He also warned analysts against assuming that, in a globalised world, UK inflation was in effect dictated by the price of Chinese imports and oil.
In a speech in Winchester to coincide with the annual meeting of the Bank's court - its board of directors - outside London, the Governor said inflation had been remarkably stable over the past decade. But he said with inflation expectations well-anchored, it mean rising prices in one part of the economy had been balanced by falls elsewhere - and vice versa.
He said the inflationary surge in oil prices to record levels had squeezed household incomes and helped "bear down" on prices of goods and services.
The recent fall in energy prices had made it less likely inflation would exceed 3 per cent, he said. "[But] the anticipated fall in inflation for September may not persist for long," he added.
He said surveys indicated businesses were likely to raise prices, while reports from the Bank's own agents showed half of firms that had seen their margins cut planned to raise their prices. "Given the uncertainties ... we will need to keep our eye on the ball and monitor closely the evolution of wage and cost pressures," he said.
He also highlighted the surge in broad money growth to a 16-year high, but said greater labour market participation by immigrants and older people could weaken wage pressures.
His comments came as a labour market survey showed that salaries for permanent staff were rising at their fastest pace for more than five years.
The Recruitment and Employment Confederation said continued robust demand for staff had pushed pay inflation to its highest level since February 2001.
A separate survey showed that retail sales growth remained strong in September. The British Retail Consortium said like-for-like sales were up 2.4 per cent on the year in September, down from an annual rate of 2.5 per cent in August.
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 4 The day I starred in Only Fools and Horses
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Germanwings plane crash: Andreas Lubitz 'had eyesight problems' and woke from nightmares 'screaming we’re going down'
Saudi Arabia says it won't rule out building nuclear weapons
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
Jeremy Clarkson 'could be given minder' ahead of a potential Top Gear return
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...