Inflation ‘will stay above 2% target for two years’

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inflation will remain above the Bank of England’s target rate for much of the next two years as squeezed workers start to demand wage rises, a monetary policy committee (MPC) member predicts.

Martin Weale told an economics seminar in Manchester that higher levels of unemployment, wage cuts and in particular the rising use of pay freezes had helped check inflation in recent years despite the bank’s £375 billion of quantitative easing (QE). But the consumer prices index has remained above the bank’s 2 per cent central target since Britain emerged from recession at the end of 2009.

Weale said: “I think it is more likely than not that inflation will remain above target for much of the next two years.”

He said further QE would add more upward pressure on prices but there was still an argument in favour of bond buying.

The MPC voted not to extend the bond-buying programme at its November meeting, and minutes published today will give clues as to whether it is likely ever to resume.