12 Feb 2015
BoE expects inflation to return to 2 percent target within two years
FXStreet (London) - In its Quarterly Inflation Report, the Bank of England has said that the fall in oil prices, together with monetary policy measures taken abroad, should support global demand. Lower energy prices will also boost UK real income growth. That, along with a lower expected path for Bank Rate than in November, should help to sustain the recent robust expansion in UK domestic demand.
In its February report, the BoE says that as slack is absorbed, inflation is projected to rise back to levels consistent with the inflation target. The Committee judges that it is currently appropriate to set policy so that it is likely that inflation will return to the 2 percent target within two years. Under the assumption that Bank Rate rises gradually over the forecast period, that is judged likely to be achieved.
CPI inflation was 0.5 percent in December, down from 1.2 percent three months ago and 1½ percentage points below the Monetary Policy Committee’s (MPC’s) 2 percent target. That triggered an open letter from the Governor to the Chancellor of the Exchequer. According to the BoE, a large part of the weakness in inflation can be accounted for by falls in energy prices. The sterling price of Brent crude oil has fallen by around 50 percent since mid-2014, leading to sharp decreases in petrol prices. Falls in the prices of food and other imports, in part a consequence of the past appreciation of sterling, have also weighed on inflation. In the Report, the BoE states that: “overall, the MPC judges that around two thirds of the undershoot in inflation, relative to target, can be explained by lower energy, food and other goods prices.”
In its February report, the BoE says that as slack is absorbed, inflation is projected to rise back to levels consistent with the inflation target. The Committee judges that it is currently appropriate to set policy so that it is likely that inflation will return to the 2 percent target within two years. Under the assumption that Bank Rate rises gradually over the forecast period, that is judged likely to be achieved.
CPI inflation was 0.5 percent in December, down from 1.2 percent three months ago and 1½ percentage points below the Monetary Policy Committee’s (MPC’s) 2 percent target. That triggered an open letter from the Governor to the Chancellor of the Exchequer. According to the BoE, a large part of the weakness in inflation can be accounted for by falls in energy prices. The sterling price of Brent crude oil has fallen by around 50 percent since mid-2014, leading to sharp decreases in petrol prices. Falls in the prices of food and other imports, in part a consequence of the past appreciation of sterling, have also weighed on inflation. In the Report, the BoE states that: “overall, the MPC judges that around two thirds of the undershoot in inflation, relative to target, can be explained by lower energy, food and other goods prices.”