"There are indications that expectations of inflation have risen. So we believe that a slowdown in the economy is needed this year to ensure inflation returns to the target," King said in his opening remarks. "So the MPC continues to face, as it has over the past 10 months, a balancing act. The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target. But at the same time, we need to avoid a slowdown that is so pronounced that it would pull inflation down, not just to the target, but below."

King reaffirmed his confidence in the BOE's ability to bring inflation back to target, adding that it was up to the central bank to do so. King also said the global monetary framework may have contributed to global inflation pressures along with foreign exchange levels in some far east Asian countries.

He also said his letter to Chancellor of the Exchequer Alistair Darling explain why inflation had risen above the 3.0% threshold was not intended to be dovish.

Also speaking before Parliament, Bank of England Deputy Governor Sir John Gieve said he sees strong upside risks to wage growth, as well as price expectations, and echoed King's forecast of 4% inflation. Gieve suggested that the current tightness in credit would remain for some time and that excess capacity in firms is expected to keep wage pressures down.

Gieve added that the risks to the economy over the next two years are finely balanced that that tight credit conditions along with a downturn in the housing sector are having adverse effects on consumers. He nevertheless pointed out that consumption data in the UK had been surprisingly strong.

Kate Barker, also a deputy governor, said that a period of excess capacity for firms would help to keep inflation from becoming entrenched and that the interest rate path for 2008 is uncertain.

The BOE's Paul Tucker reiterated that short-term inflation expectations had risen, but added that medium term expectations are still satisfactory. However, he emphasized that there is no room for complacency regarding expectations. The central banker added that the labour market will be a determining factor in monetary policy.

Timothy Besley, also an MPC member, said living standards would have to adjust with a falling pound putting upward pressure on prices. Although he said he is open minded about future interest rates, Besley said believes the first phase of the crisis is over. Nevertheless, the upside risks to CPI remained, he said, adding that if second round effects materialize, he would vote in favour of rate increases.

All members testifying admitted to having considered rate increases at the previous meeting.

By Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it with contributions from Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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