Mervyn King made the comment during a speech to local business members in Winchester on the current influences behind the MPC decisions. He said oil prices falling by a quarter and easing petrol and gas prices would have a direct result on the Consumer Price Index (CPI) inflation over the coming months.
King said: “This makes it less likely that I will have to write an explanatory letter to the Chancellor than was the case two months ago, although the anticipated fall in inflation for September may not persist for long.”
Reacting to King’s comments, Ray Boulger, senior technical manager at John Charcol, said: “The oil price is probably the single most important factor on inflation and if it comes down further before November, then there’s a good chance the Base Rate won’t move. It will have a beneficial impact for several months. It’s important to note gas prices have also fallen.
“The Bank is deliberately stressing the risks of higher inflation to put the fear of rates going up into people. It’s a tactic that works well and it’s better to take the stress out of the economy by talking about it than having to take action.”
King noted various inflationary pressures, including the level of immigration bringing lower labour costs, the volume of manufactured goods entering the country from newly-industrialised countries and the effect of wage and cost pressures.
But he denied his comments suggested how the MPC would vote in November. “The decision will be based on the outlook for inflation two years or so ahead. The decision will be taken in November and much can change between now and then.”
