The Bank of England would have to embark on a period of monetary easing to keep Britain's annual inflation rate at the government's set target of 2%, the UK's central bank said today.
In its latest quarterly inflation report, the Bank of England said inflation would be at the central bank's 2% target in two years only if interest rates fell by 0.5%.
Britain's 12-month inflation rate increased to 2.1% in October from 1.8% in September on the back of soaring fuel prices, official data showed yesterday. It meant that the annual inflation rate was above the Bank of England's 2% target for the first time since June, according to the data from the Office for National Statistics.
The Bank of England last week decided to keep its key interest rate at 5.75% for the fourth month in a row, as expected, as policymakers sat tight amid rising concerns over the global credit squeeze.
UK interest rates were increased on five occasions between August 2006 and July 2007, each time by a quarter-point, to tackle high inflation.
As a result, the country's consumer price index fell dramatically to stand at an annual rate of 1.8% in September, after spiking to a decade-high 3.1% in March.
