“The latest inflation report highlights the difficult circumstances facing the British economy. The Bank of England is predicting weaker growth and higher inflation over the next year, though the revised forecast appears on the optimistic side. Nevertheless, the Bank’s forecast reiterates the view that following a further temporary surge, inflation will gradually come down towards its 2% target, by the end of 2012.
“While high inflation in the near term will remain a major concern for the MPC, it is reassuring to hear Mervyn King assert that short-term volatility will not force the committee into policy changes that could damage the economy. Given the fragility of the economy, it is critical to avoid any action that would increase the risk of a new setback.”