The Bank's new Quarterly Inflation Report (QIR) shows CPI inflation creeping higher but, at only 1 percent, still well below its 2 percent medium-term target in the first quarter of 2016. Thereafter, it is seen rising to 2.0 percent in two years' time and to 2.14 percent by the third quarter of 2018.
The underlying assumptions include Bank Rate increasing from 0.5 percent presently to 0.7 percent in the second quarter of 2016 before moving up to 1.2 percent in the first quarter of 2017 and 1.7 percent three years ahead. In other words, the current policy stance is essentially seem appropriate to ensure the attainment of the Bank's price stability goals.
Crucial to all this will be wage developments and the new forecast puts annual growth here at 3 percent next quarter (versus 2.5 percent in May) and 3.75 percent at the end of next year. These projections provide a benchmark for comparison with the actual data and any move much above these levels could see speculation shift quickly in favour of an earlier monetary tightening.
More generally, the MPC expects UK growth to slow but remain firm on the back of rising real incomes and improving productivity. The overall picture should be seen positively by international investors which, much to the chagrin of the BoE, argues in favour of a sustained overvaluation of the pound.
The Bank's quarterly Inflation Report was first published in 1993. The Report sets out the detailed economic analysis and inflation projections on which the Bank's Monetary Policy Committee bases its interest rate and other major policy decisions, and presents an assessment of the prospects for UK inflation.
For analysts who want to know the Monetary Policy Committee's latest thinking on the economy, the Inflation Report is must reading. The Report starts with an overview of economic developments; this is followed by five sections which include analysis of money and asset prices; analysis of demand; analysis of output and supply; analysis of costs and prices and assessment of the medium-term inflation prospects and risks. The Bank of England's governor holds a press conference to discuss the report.
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