The Bank of England has raised its 2017 inflation estimate to 2.7%, from the current rate of 1%. The Bank does not expect inflation to return to its 2% target until 2020.
The rise in inflation expectations was explained by the decline in the pound since the EU referendum, which is driving up prices of imported goods.
Fig 1. Projections for UK CPI based on market interest rate expectations
The economic growth rate forecast was also raised from 0.8% to 1.4% for 2017, whilst expectations were cut for 2018 from 1.8% to 1.5%, signalling that the Brexit impact will be felt later than originally expected.
Further interest rates considered in August have been clearly ruled out.
Fig 2. Projections for UK GDP based on market interest rate expectations
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Photo credit: N/A; Chart credit:Bank of England; Table credit: N/A