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.
The Bank of England Governor, Sir Meryvn King, has warned that inflation will rise to 3% or more and remain above target for another two years.
Mr King also predicted a "slow, but sustained recovery."
ITV News' Economics Editor Richard Edgar reports.
A spokesman for the Treasury has given the following statement regarding the Bank of England's quarterly report:
As the Chancellor and the Governor have both said, the economy is healing but the road ahead remains difficult.
The Bank of England forecast a sustained recovery in the coming period, and alongside the IMF, predict growth in 2013.
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.
The Prime Minister's official spokesman has said that David Cameron's view on the Bank of England's quarterly report "is that that economy is healing".
Read: BoE: Inflation could remain above target for two years
Several strong themes emerge from the Bank of England's quarterly report.
Inflation is strengthening, but this has nothing to do with tuition fees or regulated energy prices.
When I asked Sir Mervyn King whether he is saying that higher inflation is okay, he said 'no' but added that it was better than taking it lower and risking killing off a recovery.
Sir Mervyn King said that the recovery of the British economy will depend very much on wider conditions in the world economy.
Announcing the Bank of England's quarterly forecast, he said there is a limit to what domestic measures can achieve.
Bank of England Governor Sir Mervyn King has defended what he described as a "temporary albeit protracted period of above-target inflation".
He said that any attempt to lower inflation to below the 2% target would "risk derailing the recovery".
The Bank of England has released its quarterly inflation report for February 2013:
#InflationReport – February 2013 http://t.co/tf1DWKwE
From @bankofengland on Twitter:The Bank of England said today it expects the UK economy will see a "slow, but sustained recovery" but warned that inflation will rise to 3% or more and remain above target for another two years.
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 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.