Latest Inflation Report
13 May 2010
OVERVIEW: The United Kingdom continued to emerge from recession.
World demand picked up further, although the pattern of recovery was uneven. The level of activity, both at home and in most other advanced economies, remained well below pre-crisis levels. And heightened concerns about the fiscal position in some countries led to renewed fragility in financial markets. A pickup in UK GDP growth is likely, underpinned by the considerable monetary stimulus, a projected global recovery and the past depreciation of sterling. But the pace of expansion is likely to be tempered by the need for fiscal consolidation and for further balance sheet repair by financial institutions. Both the strength of the recovery and the impact of the financial crisis on the supply potential of the economy remain highly uncertain. Even with relatively robust growth, a degree of spare capacity would be likely to persist over the forecast period. CPI inflation remained well above the 2% target, raised by the restoration of the standard rate of VAT to 17.5%, higher oil prices and the past depreciation of sterling. As these temporary effects on inflation wane, downward pressure from the persistent margin of spare capacity is likely to cause inflation to fall below the target for much of the forecast period. But the pace and extent of that moderation in inflation are highly uncertain. Under the assumptions that Bank Rate moves in line with market interest rates and the stock of purchased assets financed by the issuance of central bank reserves remains at �200 billion, inflation is somewhat more likely to be below target than above it for much of the forecast period, although those risks are broadly balanced by the end. To read or download the full overview go to Industry Support > General Downloads > Bank of England > BOE Inflation Report May 2010