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		</div><p><a href="http://londonglossy.com/wp-content/uploads/2011/02/bank-chief-warns-over-inflation.jpg"><img class="alignnone size-full" title="Bank of England governor Mervyn King has warned of continuing 'uncertainty' over inflation" src="http://londonglossy.com/wp-content/uploads/2011/02/min-bank-chief-warns-over-inflation.jpg" alt="Bank of England governor Mervyn King has warned of continuing 'uncertainty' over inflation"/></a></p>
<p>The Governor of the Bank of England has warned that there is a &#8220;great deal of uncertainty&#8221; over the outlook for inflation after the rate soared to its highest level in more than two years.</p>
<p>In a letter to Chancellor George Osborne, Mervyn King said inflation is likely to continue to pick up to between 4% and 5% over the next few months and admitted there are &#8220;real differences of view&#8221; among Bank policymakers.</p>
<p>The Governor&#8217;s comments came as the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) rate of inflation hit 4% in January, up from 3.7% in December.</p>
<p>The ONS said inflation was being driven up by soaring commodity prices, such as crude oil, as well as the impact of the VAT rise from 17.5% to 20% last month.</p>
<p>The governor is required to write a letter of explanation to the Chancellor when inflation has been 1% or more above the Government&#8217;s 2% target for three months in a row.</p>
<p>In his letter, Mr King said the high level of inflation was down to the rise in VAT, the low value of the pound and rising energy prices. He said: &#8220;There is a great deal of uncertainty about the medium-term outlook for inflation. And I do not wish to conceal there are real differences of view within the committee, reflecting different judgements about the risks to that outlook.</p>
<p>&#8220;Inflation is likely to continue to pick up to somewhere between 4% and 5% over the next few months ahead.&#8221;</p>
<p>The governor said the MPC believes that pulling inflation back to target quickly could damage economic growth and would increase the risk of undershooting the 2% target.</p>
<p>Mr King said there was a risk that the high cost of living could increase inflation expectations and thereby pull up wages and other prices, adding: &#8220;Inflation is likely to remain above target for this year, before falling back in 2012.&#8221;</p>
<p>After holding interest rates at 0.5% and the level of quantitative easing at £200 billion at this month&#8217;s meeting, Mr King said the MPC was &#8220;conscious that there are large risks in both directions&#8221;.</p>
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