King: Inflation will drop back

Julian Harris
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SENIOR doves from the Bank of England saw off their hawkish colleagues at a Treasury select committee in Westminster yesterday, insisting that inflation will fall back to target.

Leading the way was Bank governor Mervyn King, who said the “broad judgement” on his monetary policy committee (MPC) showed a drop in prices once “temporary” factors wane.

“Raising interest rates to make a gesture is self-defeating,” said King.

Consumer price inflation hit four per cent in January, and could rise to five per cent in coming months.

Conservative MP Michael Fallon turned on the Bank’s senior officials for wildly underestimating inflation in their forecasts this time last year.

MPC members Charlie Bean and Paul Tucker blamed the unforeseen rise on the depreciation of the pound and the hike in VAT to 20 per cent.

However, Bean showed signs of leaning towards the hawkish sign of the MPC, in a written statement to the Treasury select committee. “I have become rather more concerned that the period of elevated inflation may persist for somewhat longer than I originally thought,” admitted Bean, while colleague Martin Weale repeated his concern that inflation expectations could become entrenched.