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ClimateNE & Climate Change Schools Project support the move to a low-carbon, resilient economy and help businesses avoid risk and realise commercial opportunities. Posts by Jen Atkinson, Krista McKinzey and Harriet Thew » Bank of England Governor Mervyn King will tomorrow be forced to write a letter to Chancellor Alistair Darling explaining why inflation has broken through the 3% barrier.
Most analysts are convinced the Consumer Prices Index shot up to 3.2% in May, prompting the note - only the second of its kind since the Bank of England was made independent in 1997.
It's to be hoped that letter writing is a favourite pastime of the governor, because it's likely to be the first in a series of such notes. Most hard-pressed consumers will baulk at the 3.2% figure as the cost of so many everyday items - most notably fuel - has soared well above the headline statistics.
What most economists will be looking for in tomorrow's letter will be an indication of what Mr King proposes to do about tackling inflation. In particular, what role will interest rates play in the efforts to combat soaring prices?
These are fascinating times and you can be sure Mr Darling will not relish any indication that the governor intends to raise rates in order to keep downward pressure on prices. With every day yielding bleaker news about house prices and thousands of mortgage payers already struggling to meet their monthly payments, politically it would be a hugely brave move to indicate that interest rates must rise.
But the Bank is independent, isn't it? And, since recent rate cuts have generally not been passed on to householders because banks and building societies can't afford to do so, Mr King may decide that he may as well increase the cost of borrowing to show a willingness to combat inflation.
It promises to be an interesting exchange between the chancellor and the governor. How much of it is committed to paper remains to be seen.
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