UK inflation within ‘touching distance’ of 2%, BoE

Falls in energy prices helped drive down the Consumer Price Index by 2.4 per cent in June according to the Bank of England.

In its quarterly report the central bank’s governor Sir Mervyn King said CPI, which had fallen 3.5 per cent in March, is now within ‘touching distance’ of its 2 per cent growth target.

Sir Meryvn said he expected inflation to continue to fall over the coming months, however he warned the UK economy was continuing to navigate “rough waters”, and that “storm clouds continue to roll in from the euro area”.

He said major concern for the bank had been a rise in bank funding costs related to the euro-area crisis, which had fed through into higher rates for domestic borrowers.

The Bank of England also downgraded its expectations for the UK economic growth. Three months ago it forecast GDP growth of around 0.7 per cent, now it expects growth to be closer to 0 per cent during the remainder of the year.

Sir Mervy added that the impact of the Funding for Lending initiative, a joint Bank of England mand Treasury scheme aimed at lending about £80bn at below-market rates to banks and building societies, could not yet be predicted.