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Bank of England expected to increase inflation forecast again

The Bank of England has been doing a dreadful job of trying to bring inflation under its 2% target and are now expected to announce that inflation will remain high in this quarter as well after a much-hoped-for drop in January failed to materialise.

The 2.7% inflation figure from December carried over into January as well, with increasing energy prices and food bills taking most of the blame. A poor winter and autumn for growers in the UK meant that more vegetables had to be imported, driving up food prices.

This isn’t a new situation for the Bank, as they have had to revise up their inflation forecasts again and again during the financial crisis. IHS Global Insight’s Howard Archer spells out how the situation appears to anybody who has been watching the Bank of England during this period: “Once again the Bank of England will likely have the dismal task of raising its consumer price inflation forecasts and cutting its gross domestic product growth projections.”

It’s grim news, and is particularly unnerving when set against the backdrop of more recession. The triple-dip that many feared appears to be materialising, but there are those who warn that we mustn’t let stubborn inflation rates stop us from pumping more money into the economy. Vicky Redwood, the chief UK economist for Capital Economics, says that “if the economy continues to struggle, above-target inflation should not be a barrier to further stimulus. What’s more, we still expect inflation to fall back towards the end of this year as underlying price pressures fade further.”

She is building on the blocks laid by the Monetary Policy Commission, which has said that it will not stop the stimulus just because inflation is increasing, as it views economic recovery as more important. It’s grim news for pensioners and savers, but may be the right attitude to take to save the rest of the economy.

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