The Bank of England raised its forecast for economic growth while stating inflation may surpass the 2% target in 2012, with the central bank signaling that the economy has began to expand again and will not encounter a double dip recession.
BoE Governor Mervyn King said “the outlook for inflation in the medium term is somewhat higher than in the August report, reflecting the stronger projected distribution for GDP growth, while the risks of inflation being above or below target are broadly balanced by the end of the forecast period.” At the same time, the central bank head noted the medium-term outlook for inflation will drive policy going forward as policy makers anticipate price pressures to rise sharply in the short run, but went onto say that gains in asset prices should not be looked at as a bubble as the economy returns to growth. The BoE forecasts inflation to grow at an annual pace of 1.6% at over the next two-years, led by weakness of the pound and the reduction in sales tax designed by Chancellor of the Exchequer Alistair Darling to stimulate the economy. Furthermore, Mr. King said fiscal consolidation is clearly expected by the markets, and said that no one believes the emergency programs will continue indefinitely.
Nevertheless, throughout the comments, the BOE reiterated that future policy will be driven entirely by its mandate to ensure price stability.
For the full text of the Bank of England Quarterly Inflation Report, click here.
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