ANKARA
U.K. inflation is currently at zero but is expected to rise to close to 1 percent by the end of the year, Bank of England governor, Mark Carney, said Wednesday.
Speaking at a press conference for the release of the BOE's inflation report, Carney said that gradual interest rate rises could accompany rising inflation.
The key interest rate has been at a record low 0.5 percent since March 2009.
He explained: "The most important legacies of the financial crisis are the persistent headwinds which continue to weigh on the U.K. economy.
"These require not only a more gradual rate of increase in bank rates than in previous cycles, but also require the levels of bank rate to remain below average historical levels for some time to come."
Carney said there is no danger of deflation in the U.K. for now, even though the rate of interest has remained at zero since March.
"There is no evidence that consumers are delaying purchases," Carney pointed out, but added the rate of inflation could drop below zero sometime this year.
Carney said inflation should return to the 2 percent target level within two years.
Carney said that GDP growth from January to March is to be revised up to 0.5 percent, he sees expansion of 0.7 percent this quarter and the outlook for next year is "solid."
"Improving productivity, which is still weak, is the great challenge," Carney said.
The BOE cut its projection for productivity growth this year to just 0.25 percent from 0.75 percent. The 2016 forecast was also reduced to 1.25 percent.
On inflation, the central bank raised its 2015 forecast to 0.6 percent from 0.5 percent and cut the 2016 forecast to 1.6 percent from 1.8 percent.
At the two and three-year policy horizons, it sees consumer-price growth at 2 percent and 2.1 percent, respectively.
Wage growth is still soft, Carney said.
"This can happen when workers become accustomed to low pay rises, as they have since the financial crisis," he added.
The bank expects little recovery in pay growth this year, but real disposable income is expected to increase.
