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Inflation timebomb 'nears midnight'
Wednesday May 12th 2010
Fears over the triple-threat of inflation, the direction of the new Government and the spiralling budget deficit have set the tone for the Bank of England's quarterly forecast - due on Wednesday - with analysts fearing a harsh austerity package of cuts to jobs and public services that could see those with income protection insurance scrabbling for their policy book.
Governor Mervyn King is expected to say that interest rates will remain low for the foreseeable future, with no major changes to strategy decided upon until after the new administration outlines its fiscal plans for the next year.
The meeting comes less than 24 hours after Nick Clegg and David Cameron agreed to form the UK's first coalition Government since WWII. George Osborne, the new Chancellor, has already announced plans to draft an emergency Budget within 50 days, a document that could have a significant impact on the future direction of the Monetary Policy Committee (MPC).
The bank is facing the challenge of keeping a stuttering recovery on track while bottling emerging inflation problems, with the rate currently standing well above the 2% target at 3.4%, thanks mainly to the return of the 17.5% VAT rate.
While officials expect inflation to return to normal levels later in the year, rising oil costs and a dented pound to slow the pace of change, and the ongoing Greek debt crisis could complicate the situation further.
MPC officials voted earlier this week to keep interest rate at their record low level and leaving the quantitative easing programme untouched.
Copyright © Press Association 2010
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