Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education

Front Page



UK Politics







Talking Point

In Depth

On Air

Low Graphics

Monday, November 15, 1999 Published at 05:56 GMT

Business: The Economy

Inflation broadly on target

Bank of England Deputy Governor Mervyn King presents the report

Inflation looks set to fall next year before picking up again in 2001, the Bank of England has said in its quarterly inflation report.

The Bank's Monetary Policy Committee (MPC) is predicting that the underlying rate - which has undershot the government's 2.5% target for the past six months - will drop below 2% before returning to target in two years' time.

This suggests the Bank does not believe further interest rate rises will be necessary to curb inflation at present.

But the report acknowledges that there are "considerable uncertainties" about its forecasts, with the nine MPC members - who are responsible for setting interest rates - divided on the likely outcome.

Strong pound

While some thought inflation would turn out to be stronger than the forecast, others said it could be up to 0.5% weaker than the official projection.

Much of the uncertainty centres on the strength of sterling, with members split on whether the pound will remain at its present high value.

While the forecast was based on sterling falling back, removing the current dampening effect on inflation, others believed it would remain strong, helping to keep prices subdued.

The report said the Bank's two quarter-point interest-rate rises in the past three months were justified because the medium-term outlook for inflation had become "less benign".


The Bank has stressed the need for continued "vigilance".

The report says: "Because monetary policy decisions take time to work through the economy, interest rates must be set with a view to influencing prospective inflation, uncertain though that is.

"To that end, monetary policy has been tightened pre-emptively since the summer to counter the prospect of inflationary pressures building in the medium term."

The report cited rising average earnings, surging consumer demand and a "tightening" of the labour market with unemployment continuing to fall, as pointing to a pick up in price pressures.

Overall, the MPC predicted that the economy would grow by 2.5% to 3% over the next two years, in line with the forecasts in Tuesday's pre-Budget report from the Chancellor, Gordon Brown.

Advanced options | Search tips

Back to top | BBC News Home | BBC Homepage | ©

The Economy Contents

Relevant Stories

12 Oct 99 | The Economy
UK inflation holds steady

Internet Links

UK Treasury

Bank of England

Quarterly Inflation Report

The BBC is not responsible for the content of external internet sites.

In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree