Bank of England warns of inflation drop

Inflation may well stay below one per cent for the foreseeable future

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By :  ,  Financial Analyst

Inflation might drop below one per cent over the course of the next six months, the Bank of England has reported, with lower food, energy and import prices proving to be a contributing factor in the future.

According to governor Mark Carney, inflation may not reach the targeted rate of two per cent for the next three years, with feeble growth throughout Europe posing a problem for the economy.

However, salaries are said to be on the rise, with the average annual earnings growing by two per cent by the end of 2015. Average wages excluding bonuses have recently seen an uptick of 1.3 per cent, just above the latest rate of Consumer Prices Index inflation. This is the first time such a rise has been witnessed in five years.

Carney claimed that the UK is witnessing "the start of real pay growth", with the Office for National Statistics reporting a drastic decrease in unemployment figures in the three months leading up to the start of October.

"We are seeing encouraging signs with respect of pay… we expect this pick-up to accelerate," Carney told reporters.

However, such breakthroughs have apprently had little impact on inflation, which remains below one per cent. Carney has warned he may have to write a letter to Chancellor George Osborne, explaining why this has remained the case.

"A spectre is now haunting Europe," he said. "The spectre of economic stagnation, with growth disappointing again and confidence falling back."

However, inflation is expected to recover in the long term and the Bank of England will keep its interest rate at 0.5 per cent for some time in order to ensure a slow and steady recovery over the next year.

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