Britain’s annual rate of inflation would stay higher for longer, the Bank of England (BoE) announced in its quarterly inflation report, British media reported.
According to the bank’s report, the inflation rate would remain above the 2.3 percent target for another two years, saying that it may even hit 3.2 percent by the third quarter of 2013.
The bank also predicted the inflation would return to target on early 2016, 18 months later than what was predicted in November.
The BoE governor Mervyn King warned the recovery would not be smooth, saying that “This hasn’t been a normal recession, and it won’t be a normal recovery.”
“Our economy faces big challenges stemming from an abrupt and substantial reassessment of future economic prospects triggered by the financial crisis,” he added.
Sir Mervyn King said there was little sign of respite before 2016 as inflation stays “stubbornly” high — fuelled by rising food, transport and utility bills — while wages stagnate.
His warning came as new official figures showed that the impact of the financial crisis has already sent living standards back to those last seen in 2003. It is the first time on record that real wages have dropped so far.
The figures published by the Office for National Statistics (ONS) ahead of the BoE’s latest inflation forecasts, said large increases in the price of alcohol and tobacco were the main factors behind the increase.