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Plunging pound to drive up cost of living, warns Carney

By Holly Williams

Bank of England governor Mark Carney warned Britons not to be fooled by last month's drop in inflation as he stressed that the cost of living was set to rise.

In a hearing with MPs on the Treasury Select Committee, Mr Carney cautioned that inflation would increase sharply as the plunging pound put pressure on retailers and manufacturers to raise their prices.

The Office for National Statistics said that the Consumer Price Index measure of inflation was 0.9% in October - down from 1% in September. Economists has predicted a higher figure of approximately 1.1%.

Mr Carney said the official figures for October were down to volatile clothing and footwear prices, which were affected as retailers were knocked by unseasonally warm weather.

He told MPs: "Inflation is going up. A pass-through of a 20% fall in sterling is going to come and will build towards the end of this year and into 2017."

His warning follows the Bank's quarterly report earlier this month showing inflation shooting up close to 3% next year.

Mr Carney said the sharp jump in manufacturing costs shown by the latest Producer Prices Index figures was "consistent with the first stage of exchange rate pass through".

The Bank estimates that 60% of sterling's fall will be passed through to the cost of imported goods, while the impact on shop prices will take longer but could be substantial.

This will hit consumers in the pocket, Mr Carney said.

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