BoE's Gieve expects 'sharp rise' in UK inflation in coming months

This is so bearish for UK economy and bullish for the GBP :-)
See also red - what the idiots thinks...

---

- LONDON (Thomson Financial) - Bank of England (BoE) deputy governor John Gieve warned of a 'sharp rise' in inflation in the UK over the coming months, complicating the job of rate-setters at a time when the credit crunch has diminished growth prospects.

In a speech to the London Chamber of Commerce and Industry, Gieve said the big rise in recent months of world oil and food prices, amplified by the sharp fall in the pound, is coming through in food, petrol, gas and electricity prices.

'These are likely to raise our inflation rate well above target in the coming months at a time when short-term inflation expectations remain uncomfortably high,' he said.

Tuesday's figures showed the annual CPI inflation rate unchanged at 2.1 pct and still above the BoE's 2.0 pct target.

At the same time, growth is being undermined by the credit crunch, which under normal circumstances 'greatly strengthened' the case for the rate-setting Monetary Policy Committee (MPC) to ease policy.

'These are testing times for the MPC,' said Gieve, who surprised sterling markets by voting for a reduction in borrowing costs in November, alongside arch-dove Danny Blanchflower -- a month before rates were actually reduced a quarter point to 5.50 pct.

The MPC is widely tipped to cut its benchmark Bank rate another quarter point in February to 5.25 pct.

'In reaching our decisions, the MPC always looks not just at the central projection for the economy but at the risks on either side. That will require not just difficult judgements but careful explanations in the months ahead,' said Gieve.

pan.pylas@thomson.com

pp/pp/am


COPYRIGHT


Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.