Mervyn King, Governor of the Bank of England (BoE) has warned the Chancellor that inflation could rise above 4% by the end of the year.

This follows the announcement by The Office for National Statistics (ONS) that inflation reached 3.3% in May. Having increased over 1% above the Government inflation target of 2% King was required by law to write a letter of explanation to the Chancellor. In the letter King stated that the rise in inflation was due to the unanticipated rise in prices of food, gas, fuel and electricity. These increases alone account for over 90% of the steep rise in inflation since December 2007 when the rate was 2.1%. King warned the Chancellor that this is likely to be the first in a sequence of letters as inflation continues to rise

Although King is wary about making predictions, he pointed to the speed with which inflation predictions can change, as it was only last month that the BoE’s Monetary Policy Committee predicted that inflation would rise to 3.5% by the end of this year. King believes that, bar anymore unexpected price increases, inflation should peak by the end of the year. When looking towards 2009, King expects inflation to remain markedly high well into the year but will slowly fall back towards the target level.