Bank of England Inflation Report, August 2005

"The Committee judges that there are also downside risks to consumer spending and hence total demand in the next quarter or two," Governor Mervyn King told a news conference.

"CPI inflation as 2.0 percent in the latest reading exactly at target but it had risen by around one percentage point over the last nine months. Part of that increase can be accounted for by the effect of higher of oil prices and part by the pressure of demand on supply."

"Inflation will probably rise a little further in the next few months but it is then expected to fall back as the effect of the higher level of oil prices drop out of the 12 month comparison."

"The central projection is for inflation two years ahead to be above the target and rising, reflecting the growing demand pressures and rising import prices, although with the risks slightly on the downside."

King said the Bank remained ready to act as necessary, but would not decide in advance where interest rates go next. "Steady as she goes, is the motto for the Committee," he said.

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