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King warns savers over inflation

28th July 2010 | back to article listings BACK    print this article PRINT

Savers might be well advised to invest their money in property after Bank of England Governor Mervyn King on Wednesday warned that inflation was likely to remain high throughout 2011.

Speaking at a meeting of the Treasury Select Committee, Mr King told MPs that Consumer Prices Index (CPI) inflation had been high for most of the last four years and would likely stay above the Government's 2% target for "much of next year".

Inflation can be good for those with money in property because it slashes the value of any debt taken on during acquisition of a house.

Mr King added that it would be "difficult to bring inflation back down again" if high CPI expectations became ingrained, warning that despite "encouraging" economic growth of 1.1% during the first quarter, he was not completely confident in the strength of the recovery.

While accepting that interest rates would eventually return to "more normal" levels, he added: "I fear there is some significant distance to travel before we can begin to use the word 'normal'."

Pressed by committee chairman Andrew Tyrie on whether Chancellor George Osborne's emergency Budget had increased the chances of a return to recession, Mr King said: "I don't think it made a significant difference to whether we get what is technically known as a 'double-dip' recession."

Copyright © Press Association 2010

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