Source AP ©

British inflation to rise to 4 percent by next year

Bank of England Governor Mervyn King said Thursday that inflation was likely to rise to above 4 percent by 2009 due to rising food and fuel prices, but suggested a slowing economy could eventually bring it under control.

"The Monetary Policy Committee's current judgement is that inflation is likely to rise to above 4 percent before the end of the year," above the bank's 2 percent target, he told lawmakers, referring to the bank's rate-setting committee.

"The immediate cause of the rise in inflation we are seeing now is a change in the prices of food and energy relative to other prices," he said, adding that "we believe that a slowdown in the economy is needed this year to ensure inflation returns to the target."

King said that higher food and energy costs would not result in sustained inflation unless other prices and wages rise at a faster rate, and the Bank of England's Monetary Policy Committee, which sets interest rates, "is focussed on preventing that."

Britain's inflation rate has risen from 2.1 percent at the start of the year to 3.3 percent in May. The Bank has trimmed its key interest rate from 5.5 percent to 5.0 percent in two steps starting in February, but has held off further cuts amid inflation worries.

Raising rates to fight inflation, however, could dampen an economy already suffering from a collapsing housing market and expectations growth will slow.

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