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Loan Protection: Inflation to stay above target for another year

Inflation is set to remain above its target rate of two per cent for another year, according to Bank of England Governor Mervyn King.

The admission came in a letter to Chancellor George Osborne, in which Mr King revealed that certain factors could temporarily push inflation above last month's rate of 3.2 per cent before it drops below its target level in 2012.

He said: "CPI [Consumers Price Index] inflation is expected to remain above target, and at a somewhat higher level than expected three months ago, for a period of a year or so.

"Indeed, over the next few months the inflation rate might rise further."

VAT is due to rise by 2.5 per cent in January to reach 20 per cent, and coupled with the impending increase in energy prices and a weaker pound, the cost of living is set to grow considerably over the coming months.

However, Mr King claimed inflation will still be tempered.

"As the temporary effects of VAT increases and higher import prices dissipate, inflation is expected to fall back towards the target," he added.

Posted by John Fieldman

Having worked in the city for 19 years, John's main focus is interest rates and corporate finance. ADNFCR-2776-ID-800239402-ADNFCR

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