UK based Small businesses will be concerned to hear that inflation is set to breach the 3% mark within the next few weeks, according to Mervyn King, governor of the Bank of England.
During Mr King’s presentation of the Bank’s quarterly inflation report, he stated that the increase in VAT and higher petrol costs would push prices up.
Should inflation rise above the 3% mark the governor is required to write a letter of explanation to the Chancellor of the Exchequer.
On a more positive note, Mr King added that inflation is then expected to quickly fall back below the 2% target. He then went on to say that he expected that economic recovery in the UK would continue but will be a gradual process.
Other important notes from the governor’s report:
• Although the Quantitative Easing (QE) programme has been paused it may be reintroduced at a later date to assist the economy’s recovery. QE is a programme that involves feeding money into the economy by buying up assets with newly created money.
• Interest rates are expected to remain low for the foreseeable future. Unfortunately for small businesses and private individuals with savings accounts there will be very poor returns on any investments.
• The UK’s Gross Domestic Product (GDP) could grow by up to 3.5% by early 2012, although the strength of the recovery was still very uncertain.
• The FTSE 100 (lists the top 100 businesses trading on the London Stock Exchange) rose by 0.3% – a marginal increase but still shows signs of growth.