he Bank The Bank of England warned that inflation would soar further this year, but insisted that the price spike was only temporary because it kept interest rates unchanged.
The central bank’s latest economic forecast shows that the inflation rate is expected to rise to 4% in 2021, compared with the previous forecast peak of 2.5%.
This is twice the World Bank’s target, but it insists that cost pressures will prove to be “temporary” and that inflation will return to 2% in the medium term.
The decision record shows that members of the Central Bank’s Monetary Policy Committee (MPC) voted unanimously to maintain interest rates at 0.1%.
Fearing the threat of a sharp rise in inflation, a policymaker, Michael Sanders, voted to cut his £895 billion bond purchase quantitative easing (QE) plan by £45 billion, but was rejected by most committees.
The bank said: “The committee’s core expectation is that the current increase in global and domestic cost pressures will prove to be temporary.
“Nevertheless, compared with the expectations in the May report, the economy is expected to experience a period of more markedly higher-than-target inflation in the near term.”
The bank maintained its growth forecast for 2021 at 7.25% because it stated that gross domestic product (GDP) in the second quarter will grow better than expected 5%, but will slow to around 3%-weaker than expected. The first forecast-the third quarter.
Its latest quarterly forecast shows that the economy is expected to grow by 6% and 1.5% in 2022 and 2023, respectively, compared with previous forecasts of 5.75% and 1.25%, respectively.
The bank stated: “The United Kingdom gross domestic product (Gross Domestic Product) is expected to recover further in the rest of the year, reaching pre-pandemic levels in 2021 (the fourth quarter), and demand growth is driven by the weakening of Covid’s impact.
“In addition, the GDP growth rate is expected to slow to a more normal rate, partly reflecting the gradual tightening of the announced fiscal policy stance.”
