Household squeeze 'to worsen'

The Bank of England governor made clear today that the squeeze on household budgets will only get worse. Sir Mervyn King said he expected inflation to rise to three percent or more by the Ssummer and stay above target for another two years.

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Sir Mervyn King: Inflation is 'not out of control'

The Bank of England Governor has insisted that the rate of inflation is not out of control, despite the Bank's prediction that it will stay above the 2% target for the next two years.

He told ITV News' Economics Editor Richard Edgar that the higher rate of inflation is "not desirable" but that it would be better to tolerate it in "in the short term" than risk damaging the recovery.

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ONS: Real wages have been falling since 2009

The average earnings of UK workers have been falling in real terms for the last three years and are now at 2003 levels, a new article from the Office for National Statistics has shown.

After inflation has been factored in, wages have been shown to be falling since 2009 Credit: Chris Ison/PA Archive/Press Association Images

After three decades of strong growth, real wages peaked in 2009 at £12.25. Since then inflation has outstripped wage increases, leading to real wages of £11.92 in 2010 and £11.41 in 2011.

This means that real wages have dropped by almost 3% between 2010 and 2012.

Inflation driven by energy bills, tuition fees and food

Hikes in energy bills and tuition fees are behind the high rate, as well as air fares and a recovery in alcohol and food prices.

Figures from the British Retail Consortium suggest the high street performed far better than expected, driven by heavily discounted clothes and shoe prices over the Christmas period.

Howard Archer, chief UK and European economist at IHS Global Insight, said that the weak pound was also a factor.

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