By Ian McConnell
THE Bank of England yesterday forecast annual inflation would rise further above target and would likely exceed three per cent for a “temporary period”, as it announced UK base rates had been held at 0.1%.
The anticipated unanimous decision to maintain rates at their all-time low was made by the nine-strong Monetary Policy Committee at its latest meeting, which ended on Tuesday.
Annual UK consumer prices index inflation surged unexpectedly above the Bank of England’s 2% target in May, official figures showed last week.
Official data showed annual UK CPI inflation climbed from 1.5% in April to a 22-month high of 2.1% in May, with the increase fuelled by higher petrol and clothing prices. The 2.1% rate was above all 33 forecasts in a poll of economists by Reuters which had signalled an expectation of a rise to 1.8%.
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However, economists, while projecting inflation would move higher in the short term, last week signalled a view that the jump in inflation would not trigger swift monetary policy tightening.
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The Bank of England said yesterday: “Twelve-month CPI inflation rose from 1.5% in April to 2.1% in May, above the MPC’s 2% target and 0.3 percentage points higher than expected in the May Report. Core CPI inflation has also risen from 1.3% to 2.0%. Building global input cost pressures have increasingly been passed through into manufacturing output prices and non-oil import prices. CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3% for a temporary period.”
It added: “The committee’s expectation is that the direct impact of rises in commodity prices on CPI inflation will be transitory. More generally, the committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.”
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