Inflation to fall more slowly than BoE predictions

One of the Bank of England’s deputy governors recently said that inflation is expected to fall more slowly than originally predicted, leaving the majority of the nation’s savings accounts in the position of still not offering any return on investment.

The Consumer Price Index, one of the metrics used to measure the rate of inflation, rose by 0.1 per cent in March, halting a five-month decline that saw February with only 3.4 per cent inflation, according to the Office of National Statistics.  This runs counter to the confidence the BoE has placed in the rate of inflation dropping steadily towards its 2 per cent target rate before the end of 2012, and also means that any savings products that offer interest rates of 3.5 per cent or less after tax are not actually making their savers any money after the rising cost of living is taken into account.

However, Paul Tucker, one of the Bank’s deputy governors recently broke rank, coming forward to say that the country’s rate of inflation currently stands above target at an ‘uncomfortable’ level.  Mr Tucker remarked that a much more realistic expectation for inflation is that it will persist in remaining above 3 per cent well into 2012’s second half, though he added that the BoE’s Monetary Policy Committee will continue in aiming towards the 2 per cent target, taking steps to make sure that expectations of medium-term inflation are anchored to that 2 per cent rate.

Meanwhile, MPs have called upon the BoE to be more forthcoming with information to savers about how expansionary financial policies, such as low interest rates and printing money through quantitative easing, benefits the economy in the face of the havoc it plays with savings pots.  Concerns have been expressed by the Treasury Select Committee that the Bank’s current monetary policy is punitive towards savers, leaving pensioners and younger savers in precarious positions.

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