THE revival in economic growth will take longer while the pace of inflation is likely to accelerate further in the coming months. That, at least, is what economists expect from the Bank of England’s quarterly inflation report on Wednesday, when the central bank will issue fresh growth and inflation projections.
After the Monetary Policy Committee (MPC) announced that it was calling time on its extraordinary £200bn quantitative easing programme last week, economists have been scrutinising the statement accompanying the decision for clues as to what the February inflation report will reveal – the Bank will have factored these new projections for growth and inflation into its latest decision.
Investec’s Philip Shaw said: “The wording of the statement accompanying the announcement gave the impression that the committee is somewhat hesitant over recovery prospects. While Mervyn King has in the past warned about over interpreting MPC communications, we would not be surprised if the inflation report contains a set of downgraded GDP projections from what looked a set of optimistic forecasts in November.” Back in November, it forecast that the UK economy would grow by about four per cent a year in 2011.
By comparison, Fathom Financial Consulting expects just 1.5 per cent growth in 2011 thanks to its very subdued forecast for consumer spending, the risk of a double-dip in unemployment and fiscal tightening after the general election later this year.
The Bank is also expected to raise its forecasts for inflation this week. In December, the consumer prices index overshot the two per cent target by almost a whole percentage point.
Some economists expected inflation will stay high and well above target for much of 2010. A sharp revision upwards of the Bank’s target could spell a faster pace of tightening ahead.