BoE's King 'the nice decade is behind us'

The Bank of England said it expects inflation to exceed the government's 3 percent limit for 'several quarters'. Bank governor Mervyn King acknowledged that the economy may experience an 'odd quarter or two' of negative growth, but that he will likely “be required to write a number of open letters to the Chancellor over the next year”.

“The Monetary Policy Committee is facing its most difficult challenge yet. For the time being, at least, the nice decade is behind us. The credit cycle has turned. Commodity prices are rising. We are travelling along a bumpy road as the economy rebalances. Monetary policy cannot, and should not try to, prevent that adjustment. The Monetary Policy Committee must focus on bringing inflation back to the 2% target in the medium term. As our remit states, "the real stability upon which economic prosperity is founded requires that inflation remain low and stable for a long period of time." Inflation will return to the target and growth will eventually recover to a sustainable rate. But we will need to be patient." King said

Its more bad news for retailers after the BRC said this week that UK retail sales values had fallen 1.5% on a like-for-like basis, compared with April 2007, when sales were up 2.4%, helped by the warm sunny Easter weekend. The year-on-year declines in March and April were the worst since Spring 2005.