UK warned on inflation

Mervyn King, the governor of the Bank of England, has revealed his fear that inflation may fall below its target of 2 percent, due to the fact that the price of oil has fallen so suddenly, alongside commodity prices in a period of reducing domestic demand.

UK inflation has so far fallen from 5.2 percent to 4.5 percent in the last month, even though the government wants inflation to fall to at least 2 percent, although the BoE has targeted the Consumer Price Index as its main measure.

Mr King has called for action to be taken and has indicated that, as a nation, we should do whatever is necessary in order to ensure that in the medium term inflation falls back into line.

Interest rates are at 3 percent, although a further 1.5 percent cut has been suggested, as many economists believe a huge slash in rates will be made by the end of the year.

King has highlighted that the most obvious point of call should be the banking system, in that lending needs to get back to normal as much as possible, in order for the economy to function properly.

It is also hoped that the government’s decision to cut VAT will also help to lower inflation in the short and medium term.

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