Bank of England says inflation likely to stay above target in 2011

The Bank of England says inflation is likely to stay above target next year, with an equal chance of inflation being above or below target in two years’ time.

The Bank gave its two-year forecast in its Inflation Report, released today.

The opinion contradicts the Bank prediction in May that inflation would be below target in 2011 as economic headwinds took their toll.

The Bank says inflation is likely to remain above target owing to the upcoming rise in value added tax (VAT) and increases in import prices.

British purchasing managers’ indices last week also indicated that companies were passing many raw material costs onto British consumers, despite low growth in wages and economic uncertainty. (article continues below)

Global raw material prices have risen recently owing to demand from fast-growing emerging markets.

The Bank says inflation is likely to fall back as unused productive capacity continued to weigh on the economy.

“But the timing and extent of that decline in inflation are highly uncertain,” it says.