Inflation target missed for eighth time in a row

Published on Tuesday 17 August 2010 15:55

UK inflation fell slightly last month but remains well above the coalition government's two per cent target, official figures revealed yesterday.

Inflation in July was recorded at 3.1 per cent, down from 3.2 per cent in June, but still a long way off the levels specified by the government.

The failure to achieve the two per cent figure meant that the Bank of England was once again obliged to publish an open letter to explain why inflation continues to exceed ministers' targets.

If the two per cent Consumer Price Index target is missed by more than one percentage point on either side - ie, more than 3 per cent or less than 1 per cent - the governor of the Bank of England must write an open letter to the Chancellor explaining the reasons why inflation has risen or fallen to such an extent and what the Bank is going to do to bring it back on to target.

Last month's figure was the lowest rate since February, but the eighth consecutive month that the inflation rate has exceeded the target.

Governor Mervyn King blamed several factors, including a rise in sales tax in January, alongside past rises in oil prices and the continued effects of higher import prices following the devaluation of the pound since mid-2007.

Mr King repeated the Bank's projections that inflation will remain above the target until the end of 2011 - a year longer than it was predicting just a few months ago - but would then fall back as the effects of higher sales tax, energy price rises and import price increases drop away.

Mr King said last week that inflation was likely to fall back below target in 2012, but in yesterday's letter to George Osborne he acknowledged that the recent strength in inflation had surprised the Bank's rate-setting committee.