LONDON (dpa-AFX) - Bank of England Governor Mervyn King said subdued growth in average earnings and low rates of growth of broad money provide strong signals that inflation will fall back in due course.
The Monetary Policy Committee is closely watching for any signs of a pickup in domestically generated inflation and it will start normalizing interest rates as soon as it is appropriate to do so, he said in Mansion House speech Wednesday.
According to King, so-called systemically important financial institutions should have much higher levels of loss-absorbing capital. Banks are contracting balance sheets and reducing leverage. A return in interest margins something closer to normal level will affect the speed at which the BoE raise interest rates, he said.
Further, the U.K. economy is going through a major rebalancing of demand and output, King noted. Uncertainty inevitably surrounds both the speed of the rebalancing and the impact of today's consumer price inflation on domestically generated inflation, the central banker said.
As such, it is 'simply impossible' to forecast at what point monetary tightening will begin, added King.
'We could have raised Bank Rate significantly so that inflation today would be closer to the target,' said King. But that would not have prevented the squeeze on living standards arising from higher oil and commodity prices and the measures necessary to reduce twin deficits, the central bank chief added.
Copyright RTT News/dpa-AFX