The Bank of England says inflation could still be above 5% by the fourth quarter of the year, throwing doubt on Rishi Sunak’s promise to half price rises, and says the CPI won’t hit its 2% target until 2025.
The Bank’s Monetary Policy Committee now expects a Consumer Price Inflation rate of 5.1% by the end of the year. This is up significantly from the 3.9% rate predicted in February.
The Prime Minister pledged to cut UK inflation in half in January when the figure was 10.1%.
The projections follow the National Institute of Economic and Social Research’s forecast today that inflation will remain persistently higher than expected over the rest of 2023, in a worrying prediction for under-pressure households.
It then expects inflation to remain above-target through all of 2024, only hitting the 2% target in 2025.
That is despite the fact the Bank now expects a sharper decline in inflation over the next few months than it had previously predicted, as last year’s huge energy price increases fall out of the calculation.
It expects inflation to dip to 8.2% by June, better than its previous 8.5% projection, even though the consumer price index came in ahead of expectations in February and March.
“The path for inflation beyond the near term is uncertain, and the risks around the modal projection are judged to remain skewed significantly to the upside,” the Bank said.
The Monetary Policy Committee also revised its GDP projections upwards.
When it announced its February rate rise, the Bank projected the UK to enter recession this year, albeit one of the shortest and shallowest on record with GDP declining by 0.5% for the year. However, while it didn’t publish a full report of economic projections when it raised rates last month, the Bank did reveal that it no longer expected recession.
It now expects 0.25% GDP growth for this year and 0.75% growth in 2024.
Much of the improvement is due to Jeremy Hunt’s Spring Budget, which the Bank said would boost growth by 0.5 percentage points.
