Bank predicts 5% plus inflation

13-08-2008

Bank predicts 5% plus inflation
The Bank of England has conceded inflation is likely to remain well above target during the near future in its quarterly inflation report.

In the latest round of forecasts, released today, the Bank states it is "more likely than not" the consumer price index (CPI) will pass five per cent in the coming months.

This is well ahead of the Bank's stated target of two per cent.

Driving the increase is the imported problem of global energy costs, which have been pushing up retail prices and hitting consumer wallets.

However, domestic demand is expected to "slow further", increasing the margin of spare capacity in the economy and putting downward pressure on inflation.

In the medium term the Bank expects inflation to fall to "slightly below" its two per cent target by the middle of next year, as import price inflation falls and the larger margin of spare capacity in the economy bears down on domestic costs.

With wage increases running at 3.8 per cent, according to Office for National Statistics (ONS) figures, consumers are set to see real earnings decline while the inflation rate remains high.

The Bank also expects GDP growth to be "broadly flat over the next year or so".

It is then expects a quick pick up, to a rate of around 2.4 percent in two years.

This was a lower profile than that predicted in May – due to a severe housing market slowdown and tighter than expected credit conditions - and the Bank said risks remained on the downside.

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